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REPORT  TO  THE  MAYOR  AND 
CITY  COUNCIL 


ON 


WATER  RATES 


FOR  THE  PLANT  BELONGING 
TO  THE 


PEORIA  WATER  WORKS  CO. 

PEORIA,  ILL. 


September  8,  1910 


By  Benezette  Williams 
C.  B.  Williams 


TABLE  OF  CONTENTS 


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PAGES 

Letter  of  Transmittal . ’ .  3 

Rights  and  Responsibilities  of  Public  Service  Corporations  and  Munici¬ 
palities  . .  .  7 

Investment . 9 

Method  of  Finding  Investment . .  10 

Controlling  Principles  of  Public  Utility  Values .  10 

Court  Decisions  and  Public  Utility  Values .  13 

Valuations  for  Sale  and  Rate  Making .  17 

Effect  of  the  Appleton  Case .  22 

Limitation  of  the  Investment .  27 

Peoria  Water  Works,  Historical,  Descriptive  and  Financial .  29 

Investment  for  the  Peoria  Water  Works .  43 

Returns . 43 

Needed  Improvements .  47 

Water  Consumption  and  Meters .  52 

Application  of  Meters  to  Peoria  Water  Works .  59 

Cost  of  Installing  and  Maintaining  Meters . .  62 

Reasonable  Rates .  63 

Proposed  Changes  of  Water  Rates .  73 

Some  Controlling  Principles  in  Rate  Making .  73 

Meter  Rate  Schedule  for  Peoria .  79 

Proposed  Flat  or  Fixture  Rate  Provisions .  82 

Statistical  Table  of  39  Municipal  Water  Works  Plants — Appendix  I.. . .  83 

Table  of  Water  Consumption,  Population  and  Revenue  of  Peoria 

Water  Works  Plant — Appendix  II .  87 

Going  Value.  Diagram  and  Table  of  Computations — Appendix  III .  91 

Map  of  Peoria  Water  Works  System  with  Proposed  New  Supply  Main 

— Appendix  IV .  95 

Diagram,  Showing  Water  Pumped,  Population,  Number  of  Services  and 

Miles  of  Mains — Appendix  V . 97 

List  of  Free  Water  Takers — Appendix  VI . 99-102 

Statistical  Table  of  Peoria  Water  Works — Appendix  VII .  103 


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INDEX 


PAGES 

Capitalization  of  Peoria  Water  Company . . .  37 

Comparision  of  Peoria  Statistics  with  Municipal  Statistics .  65 

Contract  of  Moffett,  Hodgkins  &  Clarke .  38 

Cost  of  Old  City  Works .  30 

Cost  of  Properties  to  Both  Companies . 41-43 

Date  of 

Initial  Construction  by  City .  29 

Reconstruction  and  Sale  to  Company . 29-35  and  36 

Receivership .  38 

Receiver’s  Sale .  36 

Richwoods  Water  Co’s.  Formation .  36 

Description  of  Old  City  Works . 29-31 

Description  of  Reconstructed  Works . 32-34 

Description  of  Richwoods  Water  Co.  Property .  36 

Decisions,  Court 

Burnswick,  Maine  Case . 16-18  and  23 

Cedar  Rapids  Gas  Light  Co.  Case . 17-18 

Consolidated  Gas  Co.  Case . 17  and  44 

Galena,  Kansas  Case .  16 

Gloucester  Water  Supply  Co.  Case .  16 

Kansas  City  Case . 13-15  and  25 

Kennebec  Water  District  Case . 15-16 

Norwich  Gas  &  Electric  Case .  16 

Omaha  Case . 17 

San  Diego  Land  Co.  Case .  18 

Stanislaus  County  Case .  18 

Urbana  Case . 44-45 

Decisions,  Wisconsin  R.  R.  Commission 

Antigo  Water  Co.  Case . 20-21  and  24-45 

Appleton  Case .  22 

Cashton  Light  &  Power  Co.  Case . 19-20 

Menominee  &  Marinette  Light  &  Traction  Co.  Case .  20 

Madison,  Wis.  Case . 45-46 

Wisconsin  Telephone  Co.  Case . 20  and  26 

Improvements  Needed 

Approximate  Cost  Various  Items  of . 47-52 

Location  and  Character  of . 47-52 

Map  of  New  Supply  Mains — Appendix  IV .  95 

Need  of  Improvements . 47-52 

Timliness  of .  52 

Total  Cost  of . 50 

Investments 

Conception  of .  9-10 

Limits  of . 27-29 

Method  of  Finding .  10 

Offsets  to . 51-52 

Peoria  Water  Works  Co .  43 

Rate  of  Returns  on . 43-47 

Table  of  Various  Municipal  Plant — Appendix  I .  83 

Liabilities  of  Peoria  Water  Co . 38-39 

Liabilities  Assumed  by  Peoria  Water  Works  Co . 40-41 

Liabilities  Assumed  by  Richwoods  Water  Co . 40-41 


VII. 


Meters 

Causes  of  Imperfect  Metering . 

Comparision  of  Metered  and  Unmetered  Lake  Cities . 

Cost  of  Setting,  Cleveland,  Ohio . 

Cost  of  Maintaining,  Cleveland,  Ohio . 

Cost  of  Setting  and  Maintaining,  New  York  City,  Freeman’s 

Estimate . 

Cost  of  Setting  and  Maintaining  Peoria  Estimated . 

General  Effect  of . 

Effect  of 

Cleveland,  Ohio . 

Columbus,  Ohio . . 

Des  Moines,  Iowa . 

Fall  River,  Mass . 

Lowell,  Mass . 

Madison,  Wis . 

Milwaukee,  Wis . 

Minneapolis,  Minn . 

St.  Paul,  Minn . 

Peoria,  Number  of . 

Policy  of  Peoria  adopting . 

Operating  Expenses,  Peoria . 

Peoria  Water  Works  Statistics — Appendix  VII . 

Population 

Diagram  Showing  Growth  of — Appendix  V.  .  .  . . 

Present — Appendix  II . 

While  Old  City  Works  were  in  Operation . 

Public  Service  Corporations  ‘ 

Discussion  of  Theory  of  Valuation  of . 

Rights  and  Responsibilities  of . 

Rates 

Classification  of  Peoria . 

Discrimination  in  Peoria . 

Discussion  of  Cleveland  Meter . 

Effect  on  Peoria  Revenue  of  Present  Meter . 

Fixture  in  31  Municipal  Plants . 

Fixture  in  375  Cities . 

Meters  in  Peoria,  to  Cover  Cost  of  Water . 

Meter  Minimum  too  Low . 

New  England  W.  W.  Association  Report  on . 

Peoria  Minimum  Meter . 

Peoria  Public  Service . 

Principles  of  Making . 

Proposed  Basis  for  Meter . 

Proposed  New  Ordinance  for  Meter . 

Requisites  of  Reasonable . 

Satisfactory  Flat . 

Variety  of . 

Revenue 

Comparision  With  Operating  Expenses  of  Total . 

During  Receivership . 

Old  City  Works . . 

Sources  to  Carry  Additional  Expenditures . 

Time  to  Produce  a  Remunerative . 

Various  Municipal  Plant. — Appendix  I . . . 

Year  Ending  December  31,  1908 . 


PAGES 

.70-71 

.58-59 

.62-63 

.62-63 


62 

63 

53-54 


55  . 
55-56 

59 

57*  . 

57*4 

58-* 

54 

56 
56 
59 
73 

63-64 

103 


'  97 
'  87 
31 


25-29 

7-8 


67 
66-67 
75-76 

70 

69 

68 
72 
72 
77 

70 
65 

72-75 

79-80 

80 

63 

70 

77-79 


63 
40 

30-31 

50 

9 

83 

64 


VIII. 


Services 

Diagram  of  Peoria — Appendix  V . 

List  of  Free — Appendix  VI . 

Peoria  Number  of . 

Per  1,000  Population  Number  of . 

Various  Municipal  Plants — Appendix  I . 

Value 

Controlling  Principles  of . 

Distinction  between  Cost  and . 

Old  City  Plant  to  Peoria  Water  Co . 

Original  Cost  and  Deficit  Method  of  Obtaining . 

Peoria  Water  Works  Co.  Jan.  1,  1909 . 

Similarity  of  Sale  and  Rate  Making . 

Going  Value 

Definition  of . 

Diagram  and  Computations  of — Appendix  III . 

Limit  of . 

Old  City  Works . 

Water  Consumption 

Peoria — Appendix  V . 

Diagram  of 

Present  and  Past — Appendix  II . 

Present  Daily  Average  and  Maximum . 

Per  Capita,  Based  on  Freeman’s  Curve,  Estimate  of 

Per  Capita,  When  Fully  Metered,  Estimate  of . 

Percent  in  Future  of  Water  Metered,  Estimate  of . . . 
Per  Capita  in  Various  Cities  With  Percentage  Metered. . 

Total  Metered  1908 . 

Various  Municipal  Plants — Appendix  I . 

Water  Supply- 

Description  of  Present . 

Limits  to  Present . 

Protection  to . 


PAGES 

....  97 

. . .99-102 
....  59 

....  59 

....  83 

. . . .10-13 
. . . .10-13 
....  32 

....  19-27 
....  63 

. . . .17-18 

....  11 
.  .  .  .  91 

....  12 
....  32 

.  .  .  .  97 

88  and  53 


60 

72 

71 

67 

83 


33-34 

61 

35 


IX. 


I 


I 


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Digitized  by  the  Internet  Archive 
in  2018  with  funding  from 

University  of  Illinois  Urbana-Champaign  Alternates 


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V 


https://archive.org/details/reporttomayorcitOOwill 


> 


To  the  Honorable,  The  Mayor  and  City  Council, 

Peoria,  Illinois. 

Gentlemen : 

The  valuation  of  the  property  belonging  to  the  Peoria 
Water  Works  Company  and  the  Richwoods  Water  Company, 
submitted  by  us  under  date  of  March  24,  1910,  was  intended 
only  as  a  basis  for  a  new  schedule  of  rates,  which  we  were  not 
asked  to  enter  into  at  that  time. 

As  there  stated,  other  elements,  such  as  operating  expenses 
and  an  analytical  statement  of  the  Company’s  revenue  should 
be  had  before  taking  up  that  subject. 

Since  then,  Edward  A.  Pratt  &  Co.  ha-ve  made  a  thorough 
examination  and  analysis  of  the  rating  cards  of  the  Comnauy,  a 
summary  of  which  they  have  submitted  to  vou  under  date  of 
July  5,  1910. 

This  summary  and  the  original  analysis,  have  been  placed 
in  our  hands,  with  the  request  that  we  pursue  the  subject  along 
such  lines  as  will  lead  to  a  thorough  understanding  of  the  same, 
and  furnish  the  proper  basis  for  a  fair  adjustment  of  the  rate 
schedule. 

In  doing  this,  more  is  needed  than  the  technical  details 
which  it  may  be  proposed  to  embody  in  a  rate  ordinance.  The 
reasons  for  the  adoption  of  any  proposed  scale  of  rates,  the  prin¬ 
ciples  which  have  controlled  in  its  making,  and  its  probable 
effect  upon  the  revenue  of  the  Company  should  be  clearly  set 
forth. 

In  a  conference  with  the  Mayor  and  committee,  that  pre¬ 
ceded  the  preparation  of  this  report,  a  number  of  citizens,  repre¬ 
sentative  of  the  city’s  civic  life,  were  present.  From  certain 
expressions  made  at  that  time,  one  might  infer  that  they  and  the 
people  of  Peoria  questioned  the  basis  upon  which  the  valuation 
of  March  24th  was  made,  being  apparently  apprehensive  that 
archaic  conceptions  of  the  rights  and  powers  of  public  utility 
corporations  had  moulded  the  conclusions. 

In  such  a  case  as  the  one  in  hand,  about  which  half  a  gen¬ 
eration  of  contention  has  prevailed,  with  questions  still  unset¬ 
tled,  some  of  which  are  pending  in  the  courts  and  in  the  City 
Council,  this  questioning  attitude  is  most  commendable. 

The  realization  that  such  contentions  still  exist  in  the  com¬ 
munity,  and  that  a  wise  determination  involves  a  full  under¬ 
standing  of  the  legal  and  technical  principles  underlying  public 
utility  values,  renders  it  desirable  and  necessary  that  such  prin¬ 
ciples  should  be  set  forth  with  considerable  fullness. 

3 


These  considerations  will  account  for  the  space  given  to  the 
decisions  of  courts  and  public  utility  commissions,  and  their 
bearing  upon  the  questions'  involved  in  the  Peoria  case. 

It  has  also  seemed  desirable  to  give  a  historical  outline  of 
the  Peoria  water  plant,  covering  the  twenty  years  that  the  city 
operated  the  original  plant,  as  well  as  the  twenty-one  years  since 
the  original  plant  passed  into  the  hands  of  the  Peoria  Water 
Company,  the  antecedent  of  the  present  Peoria  Water  Works 
Company.' 

Also,  in  connection  with  the  plant’s  history,  it  is  considered 
desirable  to  determine  the  investment  that  has  been  made  in  the 
plant,  on  entirely  different  lines  from  those  followed  in  the  re¬ 
port  of  March  24th. 

This  history  is  pregnant  with  lessons  which  should  have  a 
mollifying  influence,  and  greatly  accelerate  a  just  settlement  be¬ 
tween  the  city  and  the  present  Company. 

With  a  receivership  only  twelve  years  behind  them,  it  is 
not  surprising  that  the  officers  of  the  Company  should  view  with 
apprehension  the  idea  of  so  radical  a  change  as  the  substitution 
of  a  meter  rate  basis  for  raising  revenue,  for  the  fixture  rate 
schedule  now  in  force. 

* 

It  must  be  granted  that  a  rapid  and  ill-conceived  change  of 
this  character  would  be  fraught  with  grave  danger  to  the  Com¬ 
pany’s  solvency.  For  this  reason  considerable  space  has  been 
devoted  to  the  grouping  of  facts  that  throw  light  on  the  effect 
of  the  introduction  of  meters  in  other  water  works  plants,  and  to 
a  consideration  of  a  basis  for  fixing  a  meter  rate  schedule  which 
will  reduce  this  danger  to  a  minimum. 

The  analysis  of  the  rating  cards  made  by  the  auditor  is 
invaluable  in  furnishing  a  basis  for  a  comparison  of  the  possible 
effect  of  different  rate  schedules,  and  minimizes  the  risk  attend¬ 
ing  such  a  change  as  the  one  proposed. 

The  aggregate  indebtedness  secured  by  what  are  now  first 
mortgages  of  the  Peoria  Water  Works  Company,  and  the  Rich- 
woods  Water  Company,  is  $2,200,000. 

The  needed  improvements,  including  the  installations  of 
meters,  call  for  an  expenditure  of  approximately  $570,000. 

With  the  past  history  of  the  plant  before  them  it  is  doubt¬ 
ful  whether  the  present  Company  could  advance  such  a  sum. 
even  with  the  aid  which  the  revenue  of  the  plant  can  give. 

With  the  discredit  which  attaches  to  water  works  securities 
generally,  and  particularly  in  the  State  of  Illinois,  it  would  be 
impossible  for  the  Company  to  negotiate  a  new  loan  of  sufficient 
amount  to  take  up  the  old  ones,  and  furnish  the  necessary  addi¬ 
tional  funds  to  make  the  proposed  improvements  without  an 
assured  income  sufficient  to  carry  it  when  made. 

4 


Whether  such  an  assurance  is  possible  can  only  be  deter¬ 
mined  by  the  City  Council  and  their  legal  advisers. 

But  if  a  plan  can  be  worked  out,  and  put  into  effect,  either 
on  the  line  of  some  system  of  profit  sharing  or  otherwise,  there 
is  probably  no  single  thing  which  would  advance  the  material 
interests  of  the  city  to  a  greater  extent. 

For  the  best  interest  of  the  city  and  the  Company,  it  cannot 
be  too  emphatically  impressed  upon  both,  that  a  water  service 
permanently  kept  adequate  to  the  city’s  needs,  cannot  be  had 
without  a  change  of  attitude  of  one  toward  the  other. 

The  holding  back  of  information  relative  to  the  operation 
of  the  plant  from  the  officials  and  people  of  the  city  can  but  en¬ 
gender  a  suspicion  that  things  are  not  what  they  seem,  and  to 
result  in  making  things  seem  what  they  are  not. 

Twenty-one  years  ago,  after  twenty  years  of  public  service, 
the  water  supply  of  Peoria  was,  without  exaggeration,  wholly 
unfit  for  domestic  use.  The  city  had  reached  the  limit  of  its 
power  to  serve  itself  in  any  tolerable  and  adequate  manner.  It 
never  made  a  better  bargain  than  when  it  unloaded  its  old  plant, 
on  the  terms  which  it  did,  and  thereby  secured  a  substitute, 
which  at  that  time  was  rather  in  advance  of  the  city  than  be¬ 
hind  it. 

That  it  has  now  fallen  back  is  perhaps  to  be  ascribed  more 
to  unavoidable  conditions  than  otherwise. 

The  statement,  that  if  today  the  city  were  in  the  condition, 
as  to  water  supply,  that  it  was  twenty-one  years  ago,  it  would 
be  impossible  to  secure  such  service  as  it  has  had  since  that  time, 
on  equally  favorable  terms,  is  no  fiction.  Nor  is  it  fiction  that 
a  service  equal  to  that  of  the  present  and  recent  past,  cannot 
continue  without  a  change  of  terms  and  relations  between  the 
city  and  the  Company. 

Misapprehension  and  suspicion  never  devised  a  greater 
offense  against  the  best  interests  of  the  people,  than  to  squander 
the  substance  of  the  city  and  Company  that  serves  them,  in 
fatuitous  litigation,  involving  no  inherent  rights,  while  the 
amount  of  money  thus  worse  than  wasted,  is  sorely  needed, 
many  times  over,  to  secure  adequate  service.  Far  better  for 
the  city  to  use  its  revenue  if  necessary,  to  increase  the  amount 
paid  for  public  service,  and  for  the  Company  to  husband  its 
resources  for  improvements  to  the  plant. 

There  are  no  avenues  for  financing  water  works  today  on 
such  terms  as  were  eagerly  sought  after  prior  to  1893. 

And  the  sooner  this  is  accepted  as  a  fact,  and  cities  like 
Peoria  that  aspire  to  good  water  service  developing  with  their 
needs,  make  up  their  minds  to  serve  themselves  intelligently,  or 
to  modify  the  terms  upon  which  they  are  being  served,  the 
sooner  they  will  realize  their  expectations. 

5 


Much  less  is  it  possible  for  the  Peoria  Water  Works  Com¬ 
pany  to  raise  new  capital  for  improvements,  however,  impera¬ 
tive  they  may  be,  so  long  as  the  rate  schedule  of  the  ordinance 
under  which  it  works,  carries  a  scale  of  rates,  which  if  followed 
in  accordance  with  other  perfectly  proper  provisions  of  the  same 
ordinance,  would  inevitably  throw  it  into  the  hands  of  a  receiver. 

Respectfully  submitted, 

BENEZETTE  WILLIAMS. 

C.  B.  WILLIAMS. 

Chicago,  September  8,  1910. 


6 


RIGHTS  AND  RESPONSIBILITIES  OF  PUBLIC  SER¬ 
VICE  CORPORATIONS  AND  MUNICIPALITIES. 


The  broad  questions  touching  the  respective  rights  and  re¬ 
sponsibilities  of  public  service  corporations  in  their  relation  to 
the  municipalities  which  they  serve  are  generally  well  under¬ 
stood,  though  many  misapprehensions  still  exist  in  the  public 
mind  which  are  for  the  most  part  a  legacy  of  the  past,  when  a 
conception  of  the  powers  of  such  corporations  prevailed  which 
is  fast  becoming  obsolete. 

This  conception  was  based  upon  the  theory,  which  was  also 
put  into  practice,  that  a  company  operating  a  public  utility  under 
a  public  franchise  was  its  own  master  and  not  subject  to  control 
as  to  rates  or  the  kind  and  manner  of  service  rendered. 

About  fifty  years  ago  courts  of  Great  Britain  and  a  number 
of  the  State  Supreme  Courts  in  this  country,  held  substantially, 
in  the  case  of  gas  companies  supplying  gas  under  a  public  fran¬ 
chise,  that  they  could  choose  their  customers  and  make  varying 
rates,  as  freely  as  a  private  manufacturer  engaged  in  a  competi¬ 
tive  business,  and  that  they  could  accept  or  refuse  to  render 
service  at  their  pleasure. 

The  franchises  under  which  such  companies  operated  were 
considered  property,  and  if  the  business  was  profitable  it  was 
valuable  property.  Little  distinction  was  made  between  what 
we  now  know  as  a  public  utility  and  a  strictly  private  industry, 
and  the  economic  doctrine  of  laissezfaire  was  expanded  to  em¬ 
brace  one  as  well  as  the  other. 

The  modern  conception  of  a  public  utility  corporation  is 
that  its  paramount  function  is  to  serve  the  public  without  dis¬ 
crimination,  and,  following  the  tenor  of  the  highest  court  de¬ 
cisions,  that  it  is  entitled  to  sufficient  revenue  to  meet  interest, 
operation,  maintenance,  depreciation  and  renewals,  and  to  give 
a  return  on  the  investment  represented  by  a  fair  valuation  of 
the  property  employed  that  will  make  it  an  object  for  private 
capital  to  engage  in  such  service.  Farther,  that  the  business 
should  be  a  monopoly,  and  that  a  joint  responsibility  should 
exist  between  the  public  and  private  agencies  that  brought  it 
into  being,  accompanied  by  governmental  regulation  of  rates, 
and  control  as  to  the  character  of  service  rendered. 

This  conception  really  turns  a  public  service  corporation 
into  an  arm  of  government  service,  temporarily  entrusted  with 
the  operation  of  the  public  utility. 

Besides  establishing  the  public  utility  as  a  monopoly  under 
public  control,  this  doctrine  gives  it  a  continuing  existence  as 

7 


such,  with  the  power  of  growth  and  adaptation  to  varying  con¬ 
ditions  as  they  may  arise,  subject  to  a  change  of  ownership  from 
private  to  public  agencies  and  the  reverse. 

This  distinction  between  the  old  and  the  new  is  not  always 
clearly  drawn,  though  the  state  of  New  York  in  part,  and  the 
State  of  Wisconsin  as  an  entirety,  have  put  the  modern  doctrine 
into  force  without  reservation.  New  Jersey  has  also  established 
a  Public  Utility  Commission. 

The  Wisconsin  public  utility  law  gives  a  company  operating 
a  public  utility  in  that  state,  the  same  right  to  an  increase  in 
rates,  if  those  in  force  are  inadequate,  that  the  state  or  munici¬ 
pality  has  for  a  reduction,  if  the  existing  ones  are  more  than 
adequate.  Going  with  this  is  full  protection  from  competition, 
and  the  right  of  the  municipality  to  buy  at  any  time  on  the 
valuation  of  the  public  utility  commission,  which  is  the  railroad 
commission  of  that  state. 

In  states  where  the  right  exists  and  is  exercised  to  regulate 
rates  of  such  corporations,  without  the  protection  which  such  a 
law  affords  the  investment,  it  is  doubly  difficult  to  determine  the 
question  of  reasonable  rates.  Limitations  upon  municipalities 
as  to  long  time  contracts  relative  to  public  and  private  charges, 
subjects  the  property  of  such  corporations  to  a  hazard  accumu¬ 
lating  as  the  time  for  the  expiration  of  existing  franchises-  ap¬ 
proaches. 

This  anomalous  situation,  which  exists  in  Illinois  and  many 
other  states,  is,  no  doubt,  due  to  the  transition  from  the  old 
conception  of  the  responsibilities  of  public  service  corporations 
to  the  new. 

It  is  fair  to  presume  that  courts  in  deciding  that  rate 
schedules  embodied  in  franchise  grants  to  public  service  corpor¬ 
ations  have  no  contractural  effect,  intended  merely  to  affirm  the 
power  of  legislative  control,  leaving  legislatures  to  work  out  a 
sufficient  plan  to  protect  the  investment  as  against  possible  con¬ 
tingencies  on  the  expiration  of  their  franchises. 

But  though  the  laws  of  this  state  seem  to  afford  no  such 
protection,  the  provision  in  Section  18  of  the  Peoria  Water 
Works  franchise,  that, 

“in  the  event  of  a  failure  to  purchase  said  water  works 
as  herein  provided,  on  or  before  the  expiration  of  thirty 
years,  said  license  and  franchise  shall  then  continue  in 
full  force  and  effect  until  such  time  as  said  city  may 
purchase  said  works,” 

etc.,  etc.,  appears  to  be  ample  for  this  purpose. 


8 


THE  INVESTMENT. 


The  foundation  of  all  fair  rate  schedules  is  that  sum  which 
should  justly  be  credited  to  the  public  utility  as  representing  the 
capital  upon  which  interest  and  profits  should  be  based ;  that  is, 
the  reasonable  amount  upon  which  a  percentage  should  be  al¬ 
lowed  as  returns  to  the  investor. 

At  first  thought,  the  determination  of  this  sum  seems  a 
simple  problem.  It  is  easy  to  ascertain  from  the  books  the  cash 
outlay  made  in  building  the  plant;  or  if  the  books  are  not 
accessible,  it  is  only  somewhat  more  difficult  to  determine  the 
cost  of  reproducing  the  physical  plant  today.  Either  of  these 
sums  corrected  for  present  prices  of  labor  and  material  and  re¬ 
duced  by  the  amount  of  deterioration  and  the  wear  and  tear 
which  the  plant  has  sustained  can  be,  and  are  often  assumed  to 
give  the  true  investment. 

The  facts  are,  however,  that  with  public  utilities  generally, 
this  ‘'first  thought’’  covers  only  one  part  of  the  question  involved 

On  second  thought,  it  becomes  apparent  that  a  public  utility 
that  has  been  in  operation  for  a  term  of  years  has  acquired  a 
certain  amount  of  revenue  from  private  sources,  as  distinguished 
from  revenue  for  public  service,  but  that  such  revenue  is  not 
obtained  all  at  once,  and  generally  not  without  sacrifice  and  loss 
to  the  owner. 

Farther  investigation  shows  that  such  private  revenue  is 
acquired  gradually  by  all  public  utilities,  whether  operated  by 
municipalities  or  service  corporations,  and  with  water  works 
plants,  more  gradually  than  with  any  other  kind,  and  that  it 
requires  many  years  to  reach  a  level  that  approaches  the  maxi¬ 
mum  revenue  which  the  city  should  furnish. 

It  is  found  that  water  works  plants  that  have  been  built  and 
maintained  of  adequate  size  for  the  cities  they  serve,  will  take 
from  five  to  fifteen  years  to  acquire  one  dollar  of  private  revenue 
per  capita ;  they  take  from  ten  to  twenty-five  years  to  acquire 
two  dollars  of  private  revenue  per  capita ;  and  to  reach  a  ready 
remunerative  stage  in  revenue,  generally  requires  from  twenty 
to  thirty  years. 

The  value  of  the  service  which  such  a  plant  can  render  that 
has  been  in  operation  long  enough  to  acquire  any  considerable 
private  business,  cannot  be  measured  by  its  ability  to  pump  atid 
distribute  water  only.  Its  revenue  producing  power  is  a  most 
valuable  asset,  an  asset  acquired  not  only  because  of  the  exist¬ 
ence  of  the  physical  plant,  in  a  populated  city,  but  because,  as 
stated,  it  has  usually  been  operated  for  years  without  profit,  and 
generally  at  a  loss. 


9 


To  say  that  the  investment  in  such  a  plant  shall  have  suf¬ 
fered  diminution  because  of  physical  deterioration,  and  receive 
no  increase  for  the  business  which  it  has  created,  is  inadmissible. 

It  is  erroneous  to  say  that  the  creation  of  this  business  is 
because  of  the  existence  and  growth  of  the  city  alone,  and  that 
the  city  should  derive  all  the  benefit  therefrom. 

If  the  course  of  events  had  been  such  that  the  city  had 
grown  to  its  present  size  without  water  works,  a  new  plant  just 
starting  therein  would  not  have  the  business  in  question,  but 
would  have  to  acquire  it  through  years  of  work  and  at  a  heavy 
outlay,  just  as  revenue  has  been  acquired  by  such  plants  at  all 
times. 

Building  up  of  the  business  is  as  necessary  a  part  of  creating 
a  utility  as  the  building  of  the  physical  structure.  The  two 
really  constitute  the  utility  as  a  whole,  and  each  forms  an  essen¬ 
tial  element  of  the  value. 

It  follows  from  this  that  when  a  municipality  finds  a  private 
agency  willing  and  able  to  become  the  pioneer  in  carrying  a  pub¬ 
lic  utility,  and  particularly  a  water  works  plant,  from  the  time  of 
no  private  revenue  to  the  time  when  the  acquired  revenue  brings 
remuneration,  it  has  secured  a  service,  the  value  of  which  is 
seldom  appreciated. 

METHOD  OF  FINDING  THE  INVESTMENT. 

The  foregoing  considerations  suggest  two  possible  methods 
of  determining  that  sum  which  at  any  stage  of  the  development 
of  a  public  utility  may  reasonably  be  taken  as  the  proper  invest¬ 
ment. 

1.  To  ascertain  the  fair  cash  value  of  the  property,  based 
on  the  cost  of  reproducing  the  physical  property  as  of  the  time 
of  valuation,  and  as  enhanced  by  the  fact  of  its  acquired  earnings. 
That  is,  to  find  its  value  as  a  going  concern  and  as  of  the  time  of 
valuation  on  the  hypothesis  of  reproduction. 

2.  To  ascertain  the  actual  outlay  in  the  plant  and  its 
business,  made  up  of  the  original  cost  of  the  physical  plant  aug¬ 
mented  by  the  unremunerated  expense  incurred  in  producing  or 
building  up  its  business. 

The  first  method  is  the  one  laid  down  by  the  courts  for 
fixing  the  fair  price  to  be  paid  for  a  public  utility  in  case  of  sale 
and  for  determining  the  investment  to  be  used  in  fixing  rates. 

CONTROLLING  PRINCIPLES  OF  PUBLIC  UTILITY 

VALUES. 

It  may  be  said  that  the  controlling  principles  of  public 
utility  value  as  defined  by  the  higher  courts,  recognize  the  fact 
that  cost  and  value  are  not  synonymous  terms ;  that  cost  is  not 

10 


i 


a  measure  of  value,  although  the  structural  value  of  a  plant  is 
primarily  founded  on  cost  or  price,  as  of  some  specific  time : 
that  finding  cost  is  only  a  step  in  finding  value,  and  that  the 
plant  must  be  scrutinized  as  to  its  condition  and  adaptability  to 
the  function  it  is  to  perform  in  the  future,  and  proper  deductions 
made  for  any  deficiencies  in  order  to  obtain  value. 

Also,  that  all  value  that  attaches  to  a  public  utility  grows 
out  of  the  physical  plant  and  its  earnings,  and  since  earnings,  or 
the  rendering  of  service,  is  the  primary  object  of  the  existence 
of  any  utility,  it  is  plain  that  there  can  be  no  structural  value 
without  earnings  or  service  rendered. 

Physical  existence  alone  does  not,  and  can  not,  bring  value. 
Value  emerges  only  when  earnings  or  services,  are  rendered  by 
the  operating  plant.  Hence,  the  value  of  any  plant  is  necessarily 
made  up  of  two  fundamental  and  inseparable  elements;  the 
value  of  the  physical  plant,  or  “structural  value,”  and  the  value 
of  its  business,  the  “going  value.” 

The  latter  element  goes  with  the  structural  element,  and 
augments  the  total  plant  value,  just  as  surely  as  the  cost  of 
constructing  or  supplying  the  necessary  mechanical  parts. 

The  proposition  that  a  plant  without  service  to  perform,  and 
without  earnings,  present  or  prospective,  would  be  devoid  of 
value,  except  to  be  dismantled  and  sold  as  real  estate,  second¬ 
hand  machinery  and  junk,  is  no  more  apparent  than  that  its 
value  is  due  to  service  to  be  performed  and  earnings  to  be  made 
in  the  future,  and  not  to  wiiat  has  been  done  in  the  past. 

It  is  equally  clear  that  the  structural  value  of  an  operating- 
plant  must  be  ascertained  by  comparing  it  with  a  similar  new  or 
substitute  plant,  produced  as  of  today,  but  operating  tomorrow, 
under  the  limitation  of  future  requirements,  and  that  it  is  the 
revenue  which  the  plant  in  operation  can  produce  in  the  future, 
that  could  not  be  obtained  or  produced  by  such  a  substitute 
plant,  that  constitutes  “going-  value,”  and  measures  its  magni¬ 
tude. 

It  follows  from  the  foregoing  propositions,  that  there  is  no 
vital  distinction  between  the  controlling  principles  applicable  to 
determining  structural  value  and  going  value.  In  each  case  a 
substitute  plant  is  hypothecated,  which  is  a  substantial  duplicate 
of  the  operating  plant  in  function  and  mechanical  detail.  The 
hypothecation  is  carried  to  the  extent  of  building  it,  mentally, 
not  only  at  the  prices  of  today,  but  of  doing  the  work  under  the 
conditions  and  environments  of  today.  If  pavements  cover  the 
street  pipes,  the  expense  of  taking  up  and  relaying  them  form  a 
part  of  the  cost  of  the  hypothetical  distribution  system,  even 
though  they  were  not  in  existence  when  the  pipes  were  orig¬ 
inally  laid. 


11 


After  the  structural  cost  of  this  hypothetical  plant  has  been 
thus  determined,  the  structural  value  of  the  operating  plant  is 
obtained  by  comparison.  The  probable  future  usefulness  of  the 
operating  plant,  and  its  several  parts,  are  determined  upon,  and 
the  value  fixed  by  reducing  the  estimated  cost  of  the  hypothetical 
plant  or  parts  thereof,  in  proportion  to  the  relation  between  the 
service  rendered  by  the  operating  plant,  in  the  past,  and  the 
probable  service  to  be  rendered  in  the  future. 

In  like  manner,  having  the  past  earnings  and  cost  of  oper¬ 
ating  the  present  plant,  and  its  probable  future  net  earnings  fixed 
upon,  its  going  value  is  obtained  by  a  comparison  with  the 
probable  operating  results  which  the  substitute  plant  could  give, 
if  it  were  to  be  built  today  according  to  the  hypothesis. 

It  is  obvious  that  if  the  operating  plant  had  not  been  built 
before  the  time  of  valuation,  and  had  not  obtained  a  business 
that  gives  it  value,  the  actual  construction  of  the  hypothetical 
plant  of  like  capacity,  and  its  operation  in  the  same,  though  a 
formerly  unoccupied  field,  would  furnish  the  next  best  alterna¬ 
tive  for  obtaining  revenue  and  rendering  service. 

It  is  equally  obvious  that  the  limit  of  the  going  value  ele¬ 
ment  is  the  difference  in  the  net  revenue  of  these  two  plants, 
beginning  with  the  time  of  valuation  and  continuing  to  that 
time  in  the  future  when  they  shall  have  acquired  equal  revenue. 

In  computing  going  value  as  in  determining  structural  value, 
it  is  necessary  to  distinguish  between  cost  and  value. 

Generally  for  many  years  of  a  plant’s  operation  deficits  aie 
sustained,  and  if  the  plant  occupies  a  poor  field,  or  is  serving  a 
decaying  community,  the  deficits  continue,  until  they  amount  to 
sums  greatly  in  excess  of  the  value  of  the  business  which  has 
been  acquired. 

These  deficits,  in  a  sense,  represent  the  cost  of  acquiring  the 
accrued  business  of  the  plant,  but  as  they  were  incurred  in  past 
operations,  and  going  value  can  only  be  realized  in  future  oper¬ 
ations,  it  is  plain  that  there  is  no  necessary  relation  between 
them.  Hence  as  in  the  case  of  the  physical  plant,  cost  is  not 
value,  and  it  is  necessary  to  distinguish  between  them  in  an 
appraisement. 

One  purpose  of  the  foregoing  discussion  is  to  make  it  clear 
that  in  appraising  a  public  utility,  in  accordance  with  the  first 
method  given,  it  is  necessary  to  distinguish  between  cost  and 
value,  that  though  under  certain  conditions  cost  may  be  a  true 
measure  of  value,  it  is  not  necessarily  so;  though  as  relates  to 
the  physical  elements  of  a  plant  it  is  an  essential  first  step  in 
obtaining  value. 

That  considering  a  public  utility  in  its  entirety,  its  value  not 
only  depends  upon  its  physical  structure,  but  on  the  service  it 
performs,  the  business  it  has  acquired,  and  which  it  can  carry 

12 


with  it.  The  physical  plant  and  its  business  cannot  be  separ¬ 
ated.  Though  no  service  can  be  rendered  without  the  physical 
structure,  the  physical  structure  without  the  power  and  oppor¬ 
tunity  to  render  service  would  be  valueless. 

Another  purpose  is  to  establish  the  proposition  that  it  is  the 
service  which  the  physical  structure  will  perform  in  the  future, 
not  the  work  it  has  done  in  the  past,  that  determines  its  value  as 
an  operating  mechanism ;  and  that  it  is  the  net  earnings  which 
it  will  produce  in  the  future,  not  what  it  has  produced  in  the 
past  which  determines  its  value  as  a  revenue  producing  agency, 
in  other  words,  tnat  the  value  of  a  public  utility  is  based  wholly 
upon  its  future  power  of  service,  the  past  and  present  cost  of 
construction  and  operating  being  used  only  as  an  aid  to  forecast 
the  future. 

From  the  foregoing  underlying  principles  of  valuation  it 
will  be  seen  that  any  adequate  public  utility  plant,  operating  in 
a  growing  city,  that  has  been  built  and  developed  along  lines  of 
adaptability  and  permanency,  and  that  it  kept  in  effective  work¬ 
ing  condition,  does  not  depreciate  in  value.  All  the  mechanical 
parts  of  such  a  plant  ultimately  perish  by  decay,  wrear,  on  abso- 
lescence,  and  must  be  restored.  But  being  the  only  existing 
agency  by  which  the  city,  or  the  people  of  the  city  can  secure 
its  peculiar  kind  of  service,  such  changes,  occurring  with  a  grow¬ 
ing  business,  must,  on  the  whole,  work  toward  appreciation 
rather  than  depreciation. 

COURT  DECISIONS  AND  PUBLIC  UTILITY  VALUES. 

Though  no  court,  so  far  as  known,  has  epitomized  the  prin¬ 
ciples  of  valuation  in  the  exact  form  given,  it  is  believed  that  the 
foregoing  statement  correctly  represents  the  conceptions  that 
the  courts  had  in  mind,  and  which  they  have  in  substance  ex¬ 
pressed,  in  the  decisions  which  have  become  the  basis  for  the 
valuation  of  public  utilities. 

The  leading  opinion  that  may  be  said  to  have  laid  the  found¬ 
ation  for  rational  methods  of  valuing  public  utilities,  and  that 
was  the  first  to  establish  the  equity  of  the  going  value  element 
where  there  is  no  franchise,  was  the  decision  rendered  by  Judge 
Brewer  of  the  United  States  Circuit  Court  of  Appeals,  in  the 
Kansas  City  Water  Works  case,  legally  known  as  the  National 
Water  Works  Co.  of  New  York  vs.  Kansas  City  (U.  S.  Fed. 
Reporter,  62,  853.) 

In  his  brief  on  appeal,  C.  L.  Krauthoff,  one  of  the  attorneys 
for  the  Water  Works  Company,  contended  that, 

“the  original  legislative  act  and  contract  clearly  provide 

for  a  valuation  based  upon  the  works  in  operation,  and 

that  they  were  to  be  mortgaged  upon  the  basis  of  a 

33 


going  concern.  That  the  contract  cannot  be  construed 
to  have  contemplated  that  the  works  should  be  mort¬ 
gaged  on  one  basis  and  paid  for  upon  another.  The 
works  were  to  be  mortgaged  without  reference  to  a  lim¬ 
ited  franchise,  and  their  value  thus  fixed  was  to  be 
stationery.  The  city  can  get  the  works  for  no  smaller 
amount  by  reason  of  the  absence  of  the  franchise,  and 
the  company  cannot  obtain  an  additional  allowance  as 
for  the  franchise.  The  question  is :  What  are  the 
works,  completed  and  in  operation,  worth?  *  *  *  * 

Whenever  the  purchase  was  made,  the  works  were  to 
be  valued  as  a  going  concern.  They  were  to  be  in  oper¬ 
ation.  They  were  to  be  completed,  and  the  operation 
thereof  was  to  be  contingent.” 

In  his  brief  for  the  Company  Gardiner  Lathrop  contended 
that  the  controlling  idea  of  the  contract  relative  to  purchase  is 
not  the  cost  of  the  plant  as  completed ;  it  is  not  the  cost  of  the 
theoretical  reproduction,  but  that 

“on  the  contrary,  the  provision  is  that  the  city  must  pay  • 
the  fair  and  equitable  value  of  the  company’s  works,  > 
completed  and  in  operation.  It  must  pay  upon  the  basis 
of  a  going  concern,  the  net  income  of  the  plant  .being 
the  controlling  element  upon  which  the  value  is  to  be 
estimated.” 

In  the  course  of  the  opinion  the  court  says : 

“The  company  insists  that  the  test  is  to  take  the 
income  or  earnings,  and  capitalize  them.  The  earnings 
pay  6  per  cent  on  four  millions  and  a  half.  In  other 
words,  the  company  had  produced  a  property  which 
earns  6  per  cent  on  four  millions  and  a  half ;  and  that, 
it  is  claimed,  is  the  fair  valuation  of  the  property,  6  per 
cent  being  ordinary  interest.  On  the  other  hand,  the 
city  insists  that  the  franchise  has  ceased,  and  that 
basing  a  value  upon  earnings  is  in  effect  valuing  a  fran¬ 
chise  which  no  longer  exists,  and  which  the  city  is  not 
to  pay  for ;  that  the  true  way  is  to  take  the  value  of  the 
pipe,  the  machinery  and  real  estate,  put  together  in  a 
waterworks  system,  as  a  complete  structure,  irrespective 
of  any  franchise — irrespective  of  anything  which  the 
property  earns,  or  may  earn  in  the  future.  We  are  not 
satisfied  that  either  method,  by  itself,  will  show  that 
which,  under  all  the  circumstances,  can  be  adjudged 
‘the  fair  and  equitable  value.’  Capitalization  of  the 
earnings  will  not,  because  that  implies  a  continuance 

14 


of  earnings,  and  a  continuance  of  earnings  rests  upon  a 
franchise  to  operate  the  water  works.  The  original 
cost  of  the  construction  cannot  control,  for  ‘original 
cost’  and  ‘present  value’  are  not  equivalent  terms.  Nor 
would  the  mere  cost  of  reproducing  the  water  works 
plant  be  a  fair  test,  because  that  does  not  take  into  ac¬ 
count  the  value  which  flows  from  the  established  con¬ 
nections  between  the  pipes  and  the  buildings  of  the  city. 

It  is  obvious  that  the  mere  cost  of  purchasing  the  land, 
constructing  the  buildings,  putting  in  the  machinery  and 
laying  the  pipes  in  the  streets — in  other  words,  the  cost 
of  reproduction — does  not  give  the  value  of  the  property 
as  it  is  today.  A  completed  system  of  water  works,  such 
as  the  company  has,  without  a  single  connection  be¬ 
tween  the  pipes  in  the  streets  and  the  buildings  of  the 
city,  would  be  a  property  of  much  less  value  than  that 
system,  connected,  as  it  is,  with  so  many  buildings,  and 
earning,  in  consequence  thereof,  the  money  which  it 
does  earn.  The  fact  that  it  is  a  system  in  operation, 
not  only  with  a  capacity  to  supply  the  city,  but  actually 
supplying  many  buildings  in  the  city — not  only  with  a 
capacity  to  earn,  but  actually  earning — makes  it  true 
that  ‘the  fair  and  equitable  value’  is  something  in  ex¬ 
cess  of  the  cost  of  reproduction.” 

Judge  Brewer’s  opinion  in  this  case  was  so  obviously  just, 
and  the  doctrine  laid  down  so  unmistakably  true,  that  so  far  as 
known,  none  of  the  courts  of  last  resort  has  since  rendered  an 
adverse  decision  on  a  similar  presentation  of  facts,  though  a 
number  of  them  have  confirmed  and  elaborated  the  doctrines  and 
principles  promulgated  by  Judge  Brewer. 

The  most  notable  of  such  cases  being  known  as  the  two 
Maine,  water  works  condemnation  cases,  before  the  Supreme 
Court  of  that  state. 

In  the  Kennebec  Water  District  vs.  the  City  of  Waterville 
case,  97  Maine,  185,  Judge  Savage  instructed  the  appraisers  as 
follows : 

“The  property  to  be  taken,  both  plant  and  fran¬ 
chises,  are  to  be  appraised,  having  in  view  their  value  as 
property  in  itself,  and  their  value  as  a  source  of  income. 
There  are  these  elements  of  value,  but  only  one  value 
of  one  entire  property  is  to  be  appraised  in  the  end. 
These  elements  necessarily  shade  into  each  other.”  *  *. 

“In  estimating  even  the  structural  value  of  the 
plant,  allowance  should  be  made  for  the  fact,  if  proved, 
that  the  Company’s  water  system  is  a  going  concern, 
with  a  profitable  business  established,  and  with  a  pres¬ 
ent  income  assured  and  now  being  earned.” 

15 


Also, 

“In  fixing  structural  value,  including  the  element  ol 
going  concern,  consider  also  the  present  efficiency  of  the 
system.  *  *  *  *  Necessary  time  to  construct  de 

novo,  and  the  time  and  cost  needed  after  construction 
to  develop  such  new  system  to  the  level  of  the  present 
one,  in  respect  to  business  and  income,  and  the  added 
net  income  and  profits  which  would  accrue  during  this 
period  of  construction  and  development. ” 

In  Brunswick  and  Topsham  Water  District  vs.  Maine 
Water  Company,  99  Maine,  371,  Judge  Savage  says: 

“Structural  value  must  include  consideration  of  the 
facts  that  the  structure  is  in  use,  is  a  going  concern.” 
Further : 

“We  speak  sometimes  of  a  going  concern  value  as 
if  it  is,  or  could  be  separate  and  distinct  from  structural 
value ;  so  much  for  structure  and  so  much  for  going  con¬ 
cern.  But  tnis  is  not  an  accurate  statement.  The  go¬ 
ing  concern  part  has  no  existence  except  as  a  character¬ 
istic  of  the  structures.  If  no  structure,  no  going  con-  ' 
cern.  If  a  structure  is  in  use,  its  value  is  effected  by  the 
fact  that  it  is  in  use.  There  is  only  one  value.  It  is  the 
value  of  the  structure  being  used,  that  is  all  there  is 
to  it.” 

“The  property  taken  is  a  single  tning,  to  which  be¬ 
longs  certain  characteristics  which  effect  value.  The 
thing  cannot  be  taken  without  these  characteristics.  If 
it  is  attempted  to  value  the  thing,  separate  from  its  in¬ 
herent  characteristics,  elements  which  add  value  to  the 
thing  are  omitted.  If  these  elements  are  omitted,  the 
owner  fails  to  receive  the  full  and  fair  value  of  the 
thing,  and  thereby  is  denied  just  compensation.” 

Aside  from  the  cases  cited,  courts  of  last  resort  have  sus¬ 
tained  the  principle  of  going  concern  value  in  a  number  of 
specific  instances. 

The  City  of  Galena,  Kansas,  vs.  the  Galena  Water  Works, 
is  one. 

In  fixing  the  value  of  the  plant  the  referee  allowed  an  in¬ 
crease  in  value  on  account  of  this  element,  which  the  lower 
court  refused  to  confirm.  On  appeal,  the  Supreme  Court  re¬ 
versed  the  lower  court  and  sustained  the  referee. 

Other  cases  are  Gloucester  Water  Supply  Co.  vs.  Glouces¬ 
ter,  179  Mass.  365,  and  Norwich  Gas  &  Electric  Co.  vs.  Norwich, 
76  Conn.  565. 


16 


The  City  of  Omaha,  Petitioner,  vs.  Omaha  Water  Co.,  lately 
decided  by  the  Supreme  Court  of  the  United  States,  sustains  an 
increase  of  $562,712.45  in  the  value  of  the  property  of  the  com¬ 
pany  on  account  of  the  going  concern  element  in  a  total  ap¬ 
praised  value  of  $6,263,295.49. 

VALUATIONS  FOR  SALE  AND  FOR  RATE  MAKING. 

From  the  foregoing  statements  and  citations  there  seems 
to  be  no  doubt  about  the  doctrine  that  should  apply  in  the  valua¬ 
tion  of  public  utilities  for  the  purposes  of  sale. 

Some  courts  have,  in  a  measure,  distinguished  between  a 
valuation  for  sale  and  a  valuation  for  fixing  the  investment  in 
rate  cases. 

The  Supreme  Court  of  Iowa,  in  the  case  of  Cedar  Rapids 
Gas  Light  Company  vs.  City  of  Cedar  Rapids,  Northwest  Re¬ 
porter,  120-966,  in  opinion  made  May  4,  1909,  says: 

“  Where  a  gas  company  supplying  gas  to  the  inhab¬ 
itants  of  a  city,  laid  its  mains  in  unpaved  streets,  the 
value  of  the  mains  and  pipes,  in  estimating  the  value  of 
the  property  in  fixing  rates,  should  not  be  estimated  on 
the  basis  that  it  would  cost  more  to  place  the  pipes  be¬ 
cause  the  streets  have  been  paved.” 

In  the  Consolidated  Gas  Company  case,  212  U.  S.  Reporter, 
19,  the  Supreme  Court  of  the  United  States  says: 

“And  we  concur  with  the  court  below  in  holding 
that  the  value  of  the  property  is  to  be  determined  as  of 
the  time  when  the  inquiries  were  made  regarding  rates. 

If  the  property  which  legally  enters  into  the  considera¬ 
tion  of  rates  has  increased  in  value  since  it  was  ac¬ 
quired,  the  company  is  entitled  to  the  benefit  of  such  in¬ 
crease.” 

Farther, 

“The  rate  proposed  must  be  with  reference  to  the 
value  of  the  property  at  the  time  when  the  rate  takes 
effect.  The  company  is  entitled  to  the  benefit  of  any 
increase  in  value  at  that  time.” 

Also, 

“Rates  when  fixed  by  legislative  authority  for  pub¬ 
lic  service  corporations,  should  allow  a  fair  return  upon 
a  reasonable  value  of  the  property  at  the  time  it  is  being 
fixed.” 

The  Supreme  Court  of  Maine,  in  the  Brunswick  &  Topsham 
Water  District  vs.  Maine  Water  Company,  99  Maine,  371,  says: 

17 


“Reasonableness  of  the  rates  must  be  based  upon 
the  fair  value  of  the  property  used  by  the  company  for 
service  of  the  public.” 

In  San  Diego  Land  Company  vs.  National  City,  174  U.  S. 
739,  757,  Justice  Harlan  held: 

“What  the  company  is  entitled  to  demand,  in  order 
that  it  may  have  just  compensation,  is  a  fair  return 
upon  the  reasonable  value  of  the  property  at  the  time 
it  is  being  used  for  the  public.  The  property  may  have 
cost  more  than  it  ought  to  have  cost,  and  the  outstand¬ 
ing  bonds  for  money  borrowed  and  which  went  into  the 
plant  may  be  in  excess  of  the  real  value  of  the  property 
So  that  it  cannot  be  said  that  the  amount  of  such  bonds 
should  in  every  case  control  the  question  of  rates,  al¬ 
though  it  may  be  an  element  in  the  inquiry  as  to  what 
is,  all  the  circumstances  considered,  just  both  to  the 
company  and  to  the  public.” 

In  Stanislaus  County  vs.  San  Joaquin  C.  &  I.  Co.,  192  U.  S. 
201,  214-216,  it  is  stated: 

» 

“The  original  cost  may  have  been  too  great;  mis¬ 
takes  of  construction,  even  though  honest,  may  have  - 
been  made,  which  necessarily  enhanced  the  cost ;  more 
property  may  have  been  acquired  than  necessary  or 
needful  for  the  purpose  intended.  *  *  *  *  jn  this 

case  much  of  the  total  amount  expended  in  the  course 
of  construction  of  the  works  was  not  proved  by  those 
who  made  such  expenditures,  and  the  items  and  total 
amount  of  the  cost  of  construction  were  only  proved  by 
the  books.  What  such  books  did  not  prove  was  the 
reasonableness  of  that  cost,  its  propriety  or  necessity. 

*  *  *  *  To  take  the  amount  actually  invested  into 

‘estimation’  does  not  mean  necessarily  that  such  amount 
is  to  control  the  decision  of  the  question  of  rates.” 

The  Iowa  court  in  the  Cedar  Rapids  case,  appears  to  have 
furnished  the  only  dissenting  opinion  of  a  high  court  as  to  the 
conclusion  that  the  valuation  for  fixing  rates  should  be  the  same 
as  the  valuation  for  sale. 

That  there  is  no  real  distinction  becomes  apparent  if  we 
consider  that  no  public  utility  can  have  two  values  at  a  given 
time,  and  that  its  fair  value  at  the  time  of  fixing  rates,  must  be 
its  fair  value  at  the  same  time  for  any  purpose.  If  its  fair  value 
for  sale,  differed  from  its  fair  value  for  fixing  rates,  at  a  given 
time,  then  rates  should  change,  merely  because  of  a  change  of 
ownership. 


18 


To  put  it  another  way.  If  a  given  sum  represents  the  in¬ 
vestment  which  the  owner  of  a  public  utility  is  entitled  to  have 
paid  over  to  him  in  case  of  a  forced  sale  under  the  franchise, 
or  law,  then  he  is  entitled  to  a  fair  income  on  the  same  invest¬ 
ment  in  case  he  is  forced  to  retain  it. 

It  would  appear,  therefore,  that  if  the  first  method  of  de¬ 
termining  the  investment  is  to  be  followed,  that  there  is  no 
reason  for  considering  the  value  of  the  property  as  different, 
for  rate  purposes,  from  its  value  for  sale  or  condemnation  pur¬ 
poses. 

The  Iowa  case  seems  to  be  the  result  of  an  effort  to  com¬ 
bine  two  methods  of  determining  the  investment  for  a  given 
property.  Either  the  reproduction  method  should  be  logically 
followed  and  the  investment  based  upon  the  value  as  of  the 
time  of  fixing  rates,  or  the  second  method  of  determining  the 
investment,  the  “Original  Cost  and  Deficit’'  method,  should  be 
adopted. 

THIS  SECOND  METHOD  of  determining  the  investment 
by  original  costs  and  deficits,  divorced  entirely  from  present 
value,  has  seldom,  if  ever,  been  recognized  as  sound,  so  far  as 
known,  by  courts  of  highest  resort.  Though  the  Wisconsin 
Railroad  Commission  at  one  time  seemed  to  have  adopted  it  as 
the  proper  one  for  valuing  the  public  utilities  of  that  state. 
Later  they  encountered  such  difficulties  in  its  use,  that  it  has 
been  practically  abandoned,  or,  at  most,  they  now  advocate 
only  a  halting  and  partial  use  of  the  same. 

The  Wisconsin  law  provides,  that, 

“The  Commission  shall  value  all  the  property  of 
every  public  utility  actually  used  and  useful  for  the 
convenience  of  the  public.” 

Acting  under  this  law,  the  Commission  has  made  a  number 
of  decisions  that  seek  to  establish  certain  rules  and  doctrines 
affecting  the  question  of  public  utility  values  which  may  be 
briefly  stated  as  follows: 

In  the  Cashton  Light  &  Power  Co.  case,  decided  in  Novem¬ 
ber,  1908,  the  Commission  substantially  enunciated  the  same 
doctrine  found  in  the  foregoing  citations,  as  witness  the  follow¬ 
ing  statements : 

“There  is,  however,  an  element  of  value  that  must 
be  taken  into  consideration,  and  which  is  sometimes 
spoken  of  as  a  kin  to  good  will,  namely  the  “Going 
Value,”  and  although  the  franchise  of  the  public  utility 
has  expired,  its  plant  is  to  be  taken  over  by  the  village 
as  a  going  concern,  and  just  compensation  must  be 
awarded  for  the  property  taken  as  such ;  that  is,  as  a 

19 


living  and  operating  entity,  engaged  in  serving  the  pub¬ 
lic  and  not  a  mere  plant  without  patrons.” 

Also, 

“In  placing  a  value  on  the  physical  property  of  a 
plant,  the  units  of  a  plant  should  not  be  valued  as  inde¬ 
pendent  entities,  but  as  units  of  a  going  concern  per¬ 
forming  utility  service.” 

And, 

“The  element  of  going  value  created  by  the  invest¬ 
ment  made  in  developing  the  business,  and  in  addition 
to  the  cost  of  the  physical  structure,  must  be  taken 
into  consideration  in  fixing  value.” 

In  the  Antigo  Water  Co.  case,  decided  August  3,  1909,  and 
also  in  the  Menominee  and  Marinette  Light  &  Traction  Co.  case, 
decided  the  same  date,  the  “Original  Cost  and  Deficit”  method 
of  valuation  is  advanced. 

It  is  held  as  to  the  physical  plant  alone,  that  the  original 
cost,  and  the  cost  of  reproduction,  appear  to  be  the  most  equit¬ 
able  as  a  basis  for  rate  making,  but  that  as  to  the  business  valu¬ 
ation  alone,  the  most  equitable  would  appear  to  be  represented 
by  losses  during  the  earlier  years,  or  by  deficits  from  operation 
during  the  development  period.  That  as  these  losses,  or  deficits, 
had  to  be  met  by  the  owners,  they  may  be  said  to  constitute 
the  additional  investment  necessary  to  build  up  the  business, 
and  are  as  legitimate  and  necessary  a  part  of  the  cost  of  the 
enterprise  as  a  whole,  as  is  the  cost  of  the  physical  plant,  and 
are  hence  a  part  of  that  cost  upon  which  a  reasonable  amount  of 
interest  and  profit  should  be  earned. 

In  the  case  of  E.  E.  Payne,  et  ah,  vs.  Wisconsin  Telephone 
Co.,  also  decided  August  3,  1909,  the  same  doctrine  appears  in 
the  following  statement : 

“Going  value  is  distinguished  from  going  concern 
value.  The  uncompensated  cost  incurred  in  building 
up  the  business  must  be  considered  in  rate  making. 

The  seller  of  a  plant,  which  is  a  going  concern,  may  be 
able  to  get  more,  and  the  purchaser  be  willing  to  pay 
more  than  for  a  plant  which  has  no  established  busi- 
,  ness.  Similarly  in  expropriation  proceedings  going 
concern  value  may  increase  the  amount  of  indemnity 
to  be  paid,  but  this  ‘more’  is  not  property  which  is  used 
and  useful  for  the  convenience  of  the  public.  Every 
effort  honestly  put  forth,  every  dollar  properly  ex¬ 
pended,  and  every  obligation  legitimately  incurred  in 
the  establishment  of  an  efficient  public  utility  business, 
must  be  taken  into  consideration  in  the  making  of 

20 


rates.  Collectively,  these  elements  must  be  character¬ 
ized  by  the  term  ‘going  value.’  ” 

It  is  thus  seen  that  in  the  three  cases  last  cited,  decided  by 
the  Wisconsin  Railroad  Commission  August  3,  1909,  the  doc¬ 
trine  that  the  investment  for  rate  making  purposes,  should  be 
based  upon  the  original  cost  of  construction  and  the  deficits 
incurred  in  operation,  as  opposed  to  the  doctrine  of  present 
value  laid  down  by  the  courts,  and  as  enunciated  by  the  com¬ 
mission  in  the  Cashton  case,  is  strongly  presented.  In  the  text 
of  the  decisions,  extended  arguments  are  especially  directed  to 
showing  the  fallacy  of  the  “present  value”  method  for  rate 
making  purposes. 

In  the  Antigo  Water  case  particularly,  nearly  twenty  pages 
of  the  decision  are  devoted  to  this  end,  and  to  establishing  the 
“original  cost  and  deficit”  doctrine. 

In  these  arguments,  however,  many  of  the  underlying  prin¬ 
ciples  and  facts  that  are  the  support  of  the  present  value  method 
of  appraisement  are  clearly  recognized,  as  is  shown  by  the  fol¬ 
lowing  extracts : 

Antigo  Water  case,  page  84: 

“A  mere  physical  plant,  no  matter  how  perfect  or 
how  well  it  is  adapted  to  the  purpose  for  which  it  is  in¬ 
tended,  amounts  to  but  little  unless  it  has  or  can  obtain 
a  paying  business.  Without  business  it  is  a  dead  mass 
instead  of  a  living  concern  earning  profits.  To  have 
profits  it  must  have  business  or  customers  who  avail 
themselves  of  the  services  it  renders  at  rates  that  yield 
an  adequate  income.” 

“But  new  plants  are  seldom  paying  at  the  start. 
Several  years  are  usually  required  before  they  obtain  a 
sufficient  amount  of  business  or  earnings  to  cover  oper¬ 
ating  expenses,  including  depreciation  and  a  reasonable 
rate  of  interest  upon  the  investment.  The  amount  by 
which  the  earnings  fails  to  meets  these  requirements 
may  thus  be  regarded  as  deficits  from  the  operation. 
These  deficits  constitute  the  cost  of  building  up  the 
business  of  the  plant.  They  are  as  much  a  part  of  the 
cost  of  building  up  the  business  as  loss  of  interest 
during  the  construction  of  the  plant  is  a  part  of  the  cost 
of  its  construction.” 

Here  there  is  a  clear  recognition  of  the  principle  that  plant 
value  is  as  surely  dependent  upon  earnings,  or  business,  as  upon 
the  physical  structure,  and  of  the  fact  that  public  utilities  gen¬ 
erally  reach  a  paying  basis  only  after  years  of  operation  at  a 
loss. 


21 


EFFECT  OF  THE  APPLETON  CASE. 


Notwithstanding  these  decisions  of  August  3,  1909,  so 
strongly  supporting  the  “Original  Cost  and  Deficit”  method  of 
determining  the  investment  for  a  public  utility,  as  against  the 
“Present  Value”  method,  in  the  case  of  the  “City  of  Appleton 
vs.  Appleton  Water  Works  Co.,”  decided  May  14,  1910,  the  Com¬ 
mission  take  quite  a  different  position. 

They  quote  with  disapproval  page  221,  two  Pennsylvania 
cases,  apparently  the  only  two  extant  that  seem  to  support  the 
doctrine  laid  down  in  the  three  cases  referred  to,  because,  as 
they  contend,  the  rule  adopted  by  the  Pennsylvania  courts  is 
subject  to  serious  objections.  To  quote: 

“It  would  impose  upon  the  public,  in  some  cases, 
the  obligation  of  paying  returns  upon  extravagant  and 
unwise  investments.  It  can  only  be  accepted  as  sound 
when  the  money  sunk  in  the  investment  has  been  pru¬ 
dently  expended  and  is  clearly  not  so  excessive  in 
amount,  in  comparison  with  the  actual  present  value 
of  the  investment,  that  to  pay  a  return  upon  it  would  . 
require  the  exaction  of  rates  that  are  unusual,  or  higher  , 
than  the  value  of  the  service  to  the  customer.” 

It  is  to  be  observed  that  in  this  statement  the  Commission 
appeals  to  the  “Present  Value”  to  test  the  correctness  of  the 
“Original  Cost,”  which  is  the  same  as  saying  if  the  “Originall 
“Cost”  method  brings  the  “Actual  Present  Value  of  the  Invest¬ 
ment”,*  it  may  be  followed,  otherwise  not. 

The  following,  p.  276  and  277,  Appleton  case,  is  a  still  fur¬ 
ther  repudiation  of  the  “Original  Cost  and  Deficit”  doctrine : 

“The  entire  excess  of  cost  over  operating  revenues 
incurred  in  developing  the  business  and  establishing 
the  same  upon  a  self-sustaining  basis  is  not  in  every 
instance  an  inflexible  criterion  by  which  the  element 
of  going  value  is  measured,  for  if  it  were  so  considered 
its  application  would  often  lead  to  a  reductio  ad  ab- 
surdum.  Thus,  the  longer  the  period  of  development 
necessary  to  attain  the  point  where  the  debits  and  cred¬ 
its  balance,  the  greater  might  be  the  going  value,  and  if 
such  period  were  abnormally  or  unusually  long,  it 
would  often  result  in  an  unreasonable  excessive  going 
value,  depending  upon  the  time  the  appraisement  was 
made  and  other  circumstances  of  the  particular  case 
considered.” 

*Black  not  in  the  original. 


22 


The  final  outcome  in  the  Appleton  case  is  a  full  justification 
of  the  position  taken  by  the  courts,  and  practically  leaves  the 
present  value  method  in  undisputed  control  of  questions  relative 
to  the  investment  in  public  utilities  for  either  rate  making  or  for 
sale  purposes. 

Even  such  statements  as  the  following  from  the  Brunswick 
case,  that 

“In  determining  what  would  be  a  fair  return,  un¬ 
doubtedly  the  amount  of  money  actually  and  wisely 
expended  is  a  primary  consideration.  Actual  cost  bears 
upon  reasonableness  of  rates  as  well  as  upon  present 
value  of  the  structure  as  such.  It  thus  bears  upon  what 
is  a  fair  return  upon  the  investment  and  so  upon 
the  value  of  the  property.  In  estimating  structural 
value,  prior  cost  is  not  the  only  criterion  of  present 
value  and  present  value  is  what  is  to  be  ascertained. 

The  present  value  may  be  affected  by  the  rise  or  fall  of 
prices  of  materials.  If  in  such  a  way  the  present  value 
of  the  structure  is  greater  than  the  cost,  the  Company 
is  entitled  to  the  benefit  of  it.  If  less  than  the  cost  the 
Company  must  lose  it.  And  the  same  factors  should 
be  considered  in  estimating  the  reasonableness  of  re¬ 
turns,” 

do  not  invalidate  the  last  conclusion,  for  Judge  Savage  dis¬ 
tinctly  says  if  the  present  value  of  the  structure  is  greater  than 
the  cost,  the  Company  is  entitled  to  the  benefit  of  it,  and  if  less 
the  Company  must  lose  it. 

“And  the  same  factors  should  be  considered  in  es¬ 
timating  the  reasonableness  of  returns.” 

The  doctrine  contained  in  this  case  clearly  is  that  prior 
costs  may  be  evidence  to  show  present  value,  but  the  present 
value  is  the  only  ultimate  criterion  for  determining  the  invest¬ 
ment,  whether  for  sale,  or  for  determining  the  reasonableness 
of  returns. 

The  Wisconsin  Commission  occupies  a  conspicuous  posi¬ 
tion,  being  invested  with  great  powers  as  affecting  public  util¬ 
ity  values  in  that  state.  And  because  of  the  recognized  ability 
and  fairness  of  the  Commissioners,  and  because  their  findings 
are  semi-judicial  in  nature,  they  will  necessarily  be  quoted,  and 
in  a  measure  relied  upon,  the  country  over. 

For  these  reasons  and  because  their  early  decisions  run 
counter  to  the  consensus  of  the  opinions  of  practically  all  of 
the  higher  courts  in  the  land,  we  are  justified  in  examining 
them  critically  and  in  testing  their  soundness  in  every  available 

23 


manner,  so  that  if  the  facts  assumed  by  the  Commisison  and  the 
reasoning  therefrom  are  faulty,  it  may  be  discovered. 

The  following  quotation  from  the  Antigo  Water  case,  pp. 
94  and  95,  contains  a  substantial  epitome  of  their  argument 
against  the  “Present  Value”  method  of  obtaining  the  invest¬ 
ment: 

“As  already  intimated,  engineers  and  other  ap¬ 
praisers,  in  valuing  public  utilities,  have  gone  beyond 
mere  costs  in  endeavoring  to  arrive  at  the  value  of  the 
business  of  a  going  concern,  and  have  also  taken  the 
earnings  of  such  plants  into  consideration.  They  have 
held,  in  substance,  that  such  plants  are  worth  more 
with,  than  without  an  established  business,  and  that  the 
difference  in  the  value  in  the  two  cases  is  closely  de¬ 
pendent  upon  the  cost  of  establishing  the  business,  as 
well  as  upon  the  earning  power  of  the  business  so  estab¬ 
lished.  In  other  words,  they  look  upon  both  the  cost 
and  the  earnings  of  a  business  as  proper  elements  of 
consideration  in  determining  its  value.  Many  among 
them,  in  their  appraisals,  appear  to  have  attached  great-  • 
er  importance  to  the  earnings  of  the  business  than  to- 
the  cost.  It  is  stated  above  that  the  net  cost  of  build¬ 
ing  up  the  business  would  seem  to  be  a  legitimate  item 
for  the  capital  account  or  of  that  value  of  a  plant  upon 
which  its  rates  are  based.  Whether  this  can  also  be 
said  of  the  earning  value,  appears  to  us  extremely 
doubtful.  Earning  values  are  usually  determined  by 
capitalizing  net  earnings,  or  by  comparisons,  which 
amount  to  about  the  same  thing,  and  such  values  can 
hardly  be  equitable  for  rate-making  purposes. 

“There  are  many  reasons  why  the  earning  capacity 
or  earning  value  of  the  business  cannot  be  a  just  basis 
for  rates.  Other  things  being  equal,  the  earnings  of  a 
plant  depend  upon  its  rates.  Under  such  conditions 
raises  in  rates  will  increase  the  earnings.  The  earnings 
at  the  time  of  the  appraisal  may  also  be  derived  from 
rates  that  are  unreasonably  high.” 

In  this  the  Commission  confuses  methods,  and  arguments 
sometimes  used  and  advanced  by  individuals  who  may  at  times 
be  called  upon  to  aid  in  the  appraisement  of  public  utilities, 
with  the  settled  consistent  doctrine  expounded  by  the  clearest 
thinkers  that  have  occupied,  or  still  occupy  benches  in  the  high¬ 
est  courts. 

As  far  as  appears  no  appraiser  has  ever  held  that  the  ele¬ 
ment  of  going  concern  value  is  dependent  upon  the  cost  of 
establishing  the  business,  while  at  the  same  time  contending 

24 


that  it  is  dependent  upon  the  earning  power  of  the  business  so 
established. 

But  if  such  should  be  the  case,  it  does  not  discredit  the 
soundness  of  the  contrary  view  that  cost  is  never  as  such,  a 
measure  of  value,  and  if  cost  and  value  correspond,  it  is  more 
of  a  coincident,  or  accident,  than  otherwise. 

It  is  erroneous  to  assume,  as  the  Commission  does,  with 
reference  to  appraisements,  made  by  engineers  and  others,  that, 

“Earning  Values  are  usually  determined  by  capital¬ 
izing  net  earnings,  or  by  comparisons,  which  amount  to 
about  the  same  thing.” 

If  some  appraisers  inclined  to  the  capitalizing  of  net  earn¬ 
ing  before  the  Brewer  decision  in  the  Kansas  City  case,  it  was 
to  determine  the  whole  value  of  the  plant,  and  not  merely  the 
element  of  going  value. 

This  method,  however,  was  removed  from  controversy  by 
Judge  Brewer  in  holding  it  inadmissible.  With  just  as  such 
emphasis,  however,  he  held  that, 

“The  original  cost  of  the  construction  cannot  con¬ 
trol,  for  ‘original  cost’  and  ‘present  value’  are  not  equiv¬ 
alent  terms.  Nor  would  the  mere  cost  of  reproducing 
the  water  works  plant  be  a  fair  test,  because  that  does 
not  take  into  account  the  value  which  flows  from  the 
established  connections  between  the  pipes  and  the 
buildings  of  the  city.” 

The  principles  established  by  Judge  Brewer’s  opinion  as 
sound  in  doctrine  as  well  as  in  law,  are  that  capitalizing  net 
earnings  is  inadmissible. 

Original  cost  is  eliminated,  because  “original  cost  and  pres¬ 
ent  value  are  not  equivalent  terms.” 

The  mere  cost  of  reproduction  is  not  sufficient,  “because 
that  does  not  take  into  account  the  value  which  flows  from  es¬ 
tablished  connections  between  the  pipes  and  the  buildings.” 

Now,  what  is  this  value  which  flows  from  the  established 
connections?  In  what  does  it  consist?  Whence  does  it  come? 
Judge  Brewer  did  not  give  it  a  name,  nor  did  any  one  in  Kan¬ 
sas  City  case,  though  some  of  the  attorneys  contended  that  the 
business,  and  the  plant  as  a  whole  must  be  taken  upon  the  basis 
of  a  “going  concern.” 

Obviously  it  has  to  do  with  something  that  has  economic 
value,  that  is  the  object  of  human  desire,  that  is  sought  after. 
Something  for  which  people  will  make  sacrifice.  No  one  will 
do  this  for  “Deficits  and  Losses.”  One  may  incur  “Deficits  and 
Losses”  to  attain  the  sought  for  object,  but  they  are  not  the! 
object. 


25 


The  object  desired  and  sought  in  the  case  of  public  utilities 
is  beyond  dispute,  service.  A  service  whose  value  is  repre¬ 
sented,  and  measured  by  certain  portion  of  the  probable  future 
earnings  of  the  plant. 

This  certain  portion  of  the  probable  future  earnings  is  evi¬ 
dently  the  thing  which  enhances  plant  value,  and  is  the  thing 
to  be  determined.  It  has  been  christened  “Going  Concern 
Value,”  and  for  short,  “Going  Value.”  What  is  the  proper  con¬ 
ception  of  this  value?  Is  it  properly  characterized  by  the  Wis¬ 
consin  Commission,  in  the  language  of  the  Wisconsin  Telephone 
case?  That, 

“Every  effort  honestly  put  forth,  every  dollar  prop¬ 
erly  expended,  and  every  obligation  legitimately  in¬ 
curred  in  the  establishment  of  an  efficient  public  utility 
business,  must  be  taken  into  consideration  in  the 
making  of  rates.  Collectively,  these  elements  must  be 
characterized  by  the  term  ‘going  value.’  ” 

Surely  this  was  not  the  conception  of  Judge  Brewer,  for 
the  uncompensated  cost  of  building  up  the  business  of  which 
the  commission  speaks,  the  expenses  and  obligations,  are  but 
“original  costs,”  which  Judge  Brewer  held  were  not  the  equiva¬ 
lent  of  present  value. 

What  is  it  then  but  the  earnings  which  the  operating  plant 
can  and  will  produce  in  the  future,  which  could  not  be  obtained 
if  such  plant  had  had  no  existence?  that  is  the  difference  in  the 
net  earnings  of  the  operating  plant,  and  the  possible  net  earn¬ 
ings  of  a  hypothetical  plant  if  it  were  started  today  in  the  same 
though  a  new  and  unoccupied  field? 

That  the  Wisconsin  Commission  are  not  fully  satisfied  with 
their  characterization  of  “going  value”  has  been  shown  by  the 
fact  that  while  in  the  three  cases  decided  August  3,  1909,  it  is 
conceived  of  as  dependent  upon  the  cost  of  building  up  the  bus¬ 
iness;  that  is,  upon  the  deficits  of  operation;  in  the  Appleton  case 
this  was  held  not  to  be  an  inflexible  criterion,  because,  according 
to  the  commission,  if  the  deficits  are  too  large  and  continue  over 
too  long  a  time,  the  “going  value”  becomes  too  great. 

It  is  pertinent  to  inquire,  how  is  one  to  know  that  it  becomes 
too  great?  What  is  the  standard  of  magnitude?  If  the  costs 
and  deficits  have  been  necessary  in  the  conduct  of  the  business, 
if  they  could  not  be  avoided,  and  they  are  to  be  the  measure  of 
value,  why  should  they  be  excluded  if  the  theory  is  sound?  If 
they  are  legitimately  a  part  of  the  investment  and  were  properly 
incurred,  their  magnitude  is  of  only  secondary  consequence. 

The  courts  foresaw  all  of  these  difficulties  and  kept  clear  of 
them  by  repudiating  the  theory  that  deficits  or  costs  represent 
value. 


26 


To  state  the  proposition  that  the  greater  the  deficit  the 
greater  the  value ;  that  is,  the  greater  the  loss,  or  the  less  busi¬ 
ness  the  plant  has  the  more  it  is  worth,  is  to  reduce  the  “original 
cost  and  deficit”  theory  to  a  reductio  ad  absurdum. 

The  difficulties  which  the  commission  encountered,  and 
which  some  other  minds  encounter,  is  basing  “going  values” 
upon  revenue  which  may  be  too  high,  are  only  imaginary.  The 
discriminating  appraiser  can  determine  from  the  revenue,  within 
small  limits,  whether  the  rates  are  too  high  as  a  whole,  to  give  a 
proper  basis  for  computing  going  value,  and  he  can  always  cor¬ 
rect  the  going  value  to  conform  to  the  proper  revenue  after  it 
has  been  determined. 

LIMITATION  OF  THE  INVESTMENT. 

The  principle  that  the  investment  sum  must  not  exceed  the 
fair  present  value  of  the  property  is  a  fundamental  deduction 
from  the  foregoing  discussion.  Also  that  the  value  found  must 
primarily  be  fair  to  the  municipality.  By  this  it  is  meant  that 
under  no  condition  is  the  municipality  to  be  called  upon  to  pay 
more  than  the  present  value  of  a  public  utility  as  a  going  concern. 

Hence  the  importance  of  finding  this  limit,  and  hence  the 
fallacy  of  the  “original  cost  and  deficit”  theory  of  valuation. 

Any  method  if  consistently  applied,  that  gives  more  than 
the  actual  present  value  of  the  property,  is  liable  to  be  unfair  to 
the  municipality.  And  if,  as  in  the  Appleton  case,  the  result  must 
be  compared  with  the  value  ascertained  in  another  way,  tnen  the 
method  fails  as  a  complete  instrument  of  valuation. 

It  is  the  insistency  of  the  courts  that  appraisements  shall 
not  exceed  the  present  value,  that  protects  the  public  interests, 
and  it  is  the  requirement  that  the  plant  shall  be  valued  as  a 
going  concern  that  insures  the  owner  in  at  least  a  part  of  the  N 
uncompensated  service  which  has  been  rendered. 

To  speak  of  insuring  the  owner  against  uncompensated  ser¬ 
vice  may  appear  in  effect  as  appealing  to  the  “original  cost  and 
deficit”  method.  But  this  appearance  vanishes  when  the  com¬ 
pensation  is  limited  to  the  present  value  of  the  property. 

That  the  owner  should  receive  compensation  for  his  out¬ 
lays  so  long  as  it  does  not  exceed  this  value,  is  manifestly  just. 

It  is  obvious  also  that  to  hold  that  the  owner  should  be  thus 
compensated,  within  the  limits  of  value,  is  very  different  from 
holding  or  allowing,  that  the  compensation  shall  exceed  these 
limits  if  the  costs  are  in  excess. 

This  distinction  is  fundamental.  In  one  case  the  munici¬ 
pality  always  gets  value  received,  and  the  risks  are  carried  by 
the  owner.  In  the  other  case,  the  municipality  is  made  io 
shoulder  the  risks  of  a  business  for  which  it  is  only  remotely 
responsible. 


27 


These  distinctions  are  in  full  harmony  with  the  doctrine 
laid  down  by  Judge  Savage  in  the  Brunswick  case  in  the  para¬ 
graph  quoted  above,  page  23,  which  is  in  substance  that  present 
value  must  govern,  though  original  cost  is  legitimate  evidence  to 
be  considered  as  bearing  upon  value. 

Some  confusion  in  the  methods  of  valuation,  as  with  tlie 
rights  and  responsibilities  of  public  service  corporations,  aie 
perhaps  inevitable  during  the  transition  period  from  the  old  to 
the  new  conception  of  a  public  utility. 

No  one  can  reasonably  deny  that  if  the  public  utility  being 
valued  was  brought  into  being  as  the  joint  product  of  public  and 
private  agencies,  and  if  during  all  of  its  past  existence  it  has  been 
operated  under  strict  governmental  control,  wTith  a  scale  of  rates 
which  furnished  proper  remuneration  to  the  operator,  that  the 
actual  original  cost  of  the  physical  property,  increased  by  the 
outlay  in  creating  the  business,  might  reasonably  be  conside-ed 
the  fair  investment  sum  sought. 

But  there  are  no  such  public  utilities  in  existence  today. 
Those  now  being  operated  by  semi-private  and  quasi-public 
agencies,  were  created  by  such  agencies  under  contract  with  the 
municipalities  which  they  serve. 

By  the  theory  of  their  creation  the  risks  were  assumed  by  the 
owners.  If  they  made  money  it  was  theirs,  if  they  did  not,  they 
would  have  to  bear  the  loss. 

The  public  could  not  be  called  upon  to  make  them  whole, 
either  directly  or  indirectly,  except  so  far  as  the  value  of  the 
property  will  affect  that  result.  To  this  value  they  are  entitled 
at  least  as  far  as  is  necessary,  to  proper  remuneration.  But  they 
have  no  right  to  compensation  beyond  that  given  by  the  value 
of  the  property. 

It  should  not  be  assumed  that  in  all  cases  the  value  of  the 
property  should  be  enhanced  by  the  full  amount  represented  by 
the  difference  of  the  net  earnings  of  the  operating  plant  com¬ 
pared  with  the  hypothetical  plant,  that  is,  by  the  full  amount  of 
the  going  value. 

After  the  revenue  of  the  operating  plant  has  been  devel¬ 
oped  substantially  to  the  level  of  the  city  it  serves,  it  may  be 
found  that  an  enhancement  of  even  less  than  one-half  of  the  full 
going  value  will  give  an  investment  adequate  to  afford  proper 
compensation  to  the  company.  In  such  event,  the  city  becomes 
a  large  beneficiary  from  the  past  operations  of  the  plant. 

It  is  thus  seen  that  an  equitable  valuation  of  a  public  utility 
involves  a  careful  consideration  of  many  variable  elements. 

It  is  little  wonder  then  that  the  Wisconsin  commission 
should  find  that  different  cases  present  different  aspects,  and 


28 


that  conclusions  that  seem  justified  in  one  case,  are  not  consist¬ 
ent  and  just  in  another. 

Difficulties  will  arise,  whatever  theory  of  valuation  is  adopt¬ 
ed,  but  that  theory  which  follows  the  true  economic  principles  of 
value  will  be  found  to  be  the  simpler  and  freest  from  em¬ 
barrassments. 

So  long  as  the  appraiser  keeps  within  the  limits  of  actual 
values  he  is  not  likely  to  go  far  astray.  But  if  he  attempts  to 
deal  in  “original  costs  and  deficits,”  except  as  a  mere  check,  as 
evidence  to  educate  his  judgment,  nothing  but  confusion  will 
follow. 

Herein  lies  the  contrast  of  the  two  methods  of  valuation. 

“Origial  costs  and  deficits”  consistently  followed  may  lead 
to  great  injustice,  and  without  a  resort  to  present  value  for  com¬ 
parison,  the  appraiser  may  often  be  unable  to  get  his  bearings. 

But  so  long  as  logically  determined  present  values  are  dealt 
with  no  serious  injustice  can  result. 

Such  being  the  case  it  is  evident  that  the  doctrine  of  valua¬ 
tion  laid  down  by  the  courts,  is  the  only  one  which  will  safely 
guard  the  rights  and  interests  of  the  public,  as  well  as  of  the 
owners  of  the  utility. 

Being  convinced  of  the  correctness  of  this  position,  it  has 
been  the  endeavor  in  this  case  to  find  that  sum  for  the  invest¬ 
ment,  which  being,  by  a  wide  margin,  within  present  values,  will 
bring  to  the  owners  of  the  Peoria  Water  Works,  substantial 
compensation  for  the  service  they  have  rendered  the  city. 


PEORIA  WATER  WORKS. 

Historical,  Descriptive,  Financial. 

In  a  sense,  the  water  works  built  by  the  City  of  Peoria  in 
1868  and  ’69,  and  operated  until  November  1,  1889,  when  they 
were  turned  over  to  the  Peoria  Water  Co.,  the  assign  of  Moffett, 
Hodgkins  &  Clarke,  were  the  beginning  of  the  present  plant,  and 
for  certain  purposes  the  latter  should  be  considered  as  the  con¬ 
tinuation  of  the  former. 

Appendix  IV  of  the  report  of  March  24th,  contains  a  brief 
historical  statement  of  such  salient  facts  as  could  be  culled  from 
the  city  records  in  the  offices  of  the  City  Clerk  and  City  Comp¬ 
troller.  The  minutes  of  the  City  Council,  covering  this  period, 
are  available,  but  unfortunately,  in  only  a  limited  number  of  in¬ 
stances  do  they  contain  the  detailed  reports  of  the  Water  Works 
Committee,  or  the  Superintendent  of  Water  Works,  except  by 
inferences,  and  what  is  still  more  unfortunate,  these  original 
reports  are  generally  not  on  file.  The  data  available  is,  hence,  to 
a  certain  extent,  fragmentary. 


29 


It  has  been  possible,  however,  to  arrive  at  a  reasonably  close 
approximation  of  the  cost  of  the  water  works,  and  of  their  oper¬ 
ation,  and  the  income  from  the  various  sources,  of  water  fates, 
bonds  and  taxes. 

The  following  is  a  statement  covering  construction  and 
operation  of  the  plant,  from  which  it  will  be  observed  that  the 
cost  of  the  distribution  system  is  placed  at  $462,000,  while  in 
Appendix  IV  of  the  March  24th  report,  it  is  given  as  $420,000, 
the  total  plant  cost  being  $662,000  instead  of  $620,000.  This 
variation  is  partly  due  to  a  revision  of  the  figures,  but  mainly  to 
the  discount  on  bonds  and  interest  during  the  first  construction 
period  being  included. 

The  following  is  a  summary  of  the  approximate  cost  of 
building  and  operating  these  works,  covering  twenty  years,  from 
1869  to  November  1,  1889,  when  the  plant  was  acquired  by  the 
Peoria  Water  Company. 

Cost  of  construction  includes  interest  during  the  period  of 
first  construction,  June  1868,  to  December  1869,  and  discount 
on  bonds : 

Cost  of  pumping  station,  including  real 
estate,  inlet  from  river,  pumps,  boil¬ 
ers,  etc . $200,000 

Distribution  system,  including  city  wells. ..  .  462,000  $  662.000 

Operating  expenses  . $436,000 

Interest  paid  .  729,000  $1,165,000 


Total  outlay  on  account  of  works . $1,827,000 

Receipts. 

Water  rents  and  taps . $505,000 

Bonds .  500,000 

Income,  miscellaneous  .  22,000 

Income  from  taxes .  800,000  $1,827,000 


The  plant  was  sold  for  $450,000,  and  there  was  received  for 
water  rents,  $505,000,  a  total  of  $955,000,  which  taken  from  the 
total  outlay  of  $1,827,000,  leaves  $872,000  as  the  cost  of  furn¬ 
ishing  fire  protection,  or  public  service,  for  twenty  years,  which 
is  $43,500  per  year. 

The  works  started  with  15.5  miles  of  street  mains  in  1869. 

/ 

and  ended,  in  1889,  with  45  miles,  the  yearly  average  being  not 
more  than  33  miles. 

On  this  basis,  the  cost  of  fire  service  per  mile  of  pipe  in  use, 
while  the  city  operated  the  plant,  was  $1,320  per  annum. 

Prior  to  building  the  works  the  cost  of  the  fire  department 
per  year  was  $13,000. 


30 


The  first  official  act  leading  to  the  construction  of  the  orig¬ 
inal  works  was  taken  by  the  City  Council,  February  4,  1868, 
when  a  committee  was  authorized  to  employ  an  engineer  to 
prepare  plans  for  a  system  of  water  works. 

This  resulted  in  engaging  Joseph  A.  Lock,  formerly  assistant 
engineer  of  the  Louisville  Water  Works,  who  made  surveys  and 
plans  for  a  reservoir  system,  estimated  to  cost  $310,059. 

The  committee  reported  against  the  reservoir  plan,  and  in¬ 
stead  recommended  the  Holly  direct  pressure  system,  equipped 
with  Holly  eliptical  rotary  pumps,  to  have  a  capacity  of  3,500,000 
gallons  in  24  hours. 

The  Holly  system  was  then  in  an  experimental  stage,  and 
the  Peoria  plant  must  have  been  among  the  first  of  the  kind  built 

May  25,  1868,  the  committee  was  authorized  to  contract 
with  the  Holly  Company  for  the  pumping  plant,  and  a  few  days 
later  to  contract  for  pipe. 

December  7,  1869,  the  Water  Works  Committee  reported 
that  water  was  first  supplied  through  the  pipes  on  June  22,  and 
that  the  works  were  substantially  completed  December  1st,  at 
which  time,  15^4  miles  of  pipe  had  been  laid,  and  110  fire 
hydrants  had  been  set.  They  had  cost  on  a  cash  basis,  $353,133. 

The  Holly  machinery  did  not  prove  durable,  and  was  very 
extravagant  in  the  use  of  coal. 

About  1874  or  ’75  one  Dean,  and  one  Cameron  pump  was 
purchased,  and  in  1879  and  1880,  two  Worthington  pumps  were 
installed,  each  rated  at  2,500,000  gallons  capacity  in  24  hours. 

The  pumping  plant  and  supply  works  were  located  at  Grant 
street  and  the  Illinois  river,  the  water  being  drawn  from  the 
river. 

The  quality  of  the  water  was  very  bad,  and  seriously  handi¬ 
capped  the  plant  in  obtaining  revenue.  Though  in  four  years 
it  had  acquired  a  revenue  of  $22,615  per  year,  in  1889,  sixteen 
years  later,  the  revenue  was  only  about  $33,000,  an  increase  of 
less  than  50  per  cent. 

During  this  time  the  population  of  the  city  had  grown  from 
about  25,000  to  41,000,  and  the  pipe  mileage  was  nearly  doubled. 

The  service  rendered  by  the  plant  not  being  satisfactory,  in 
1887,  Mayor  Kinsey  urged  that  a  reservoir  system  be  built,  and 
in  the  following  year  he  renewed  the  recommendation. 

As  a  result  of  the  then  existing  conditions,  and  the  Mayor’s 
recommendations,  and  because  the  city  could  not  obtain  the 
money  to  reconstruct  the  plant  with  a  suitable  supply  of  potable 
water,  on  May  4,  1889,  the  council  passed  the  present  water 
works  ordinance,  granting  Moffett,  Hodgkins  &  Clarke  a  fran¬ 
chise  to  rebuild,  enlarge  and  extend  the  water  works  system, 
and  providing  for  the  sale  to  them  of  the  then  existing  works 
for  $450,000,  the  amount  of  the  outstanding  water  works  bonds. 

31 


The  franchise  was  granted  for  thirty  years,  with  a  provision 
for  a  renewal  for  an  equal  term,  if  the  plant  shall  not  have  been 
purchased  by  the  city,  by  the  end  of  the  first  thirty  years. 

It  was  not  to  take  effect  until  a  water  supply  satisfactory  to 
the  City  Council  had  been  discovered  by  Moffett,  Hodgkins  & 
Clarke,  and  accepted  by  the  City  Council. 

The  ordinance  of  May  4th  was  amended  July  23,  1889,  and 
on  November  1st  the  old  city  works  were  turned  over  to  the 
Peoria  Water  Company,  the  assigns  of  Moffett,  Hodgkins  & 
Clarke,  which  Company  they  had  organized  June  2,  1889;  Mof¬ 
fett,  Hodgkins  &  Clarke  taking  a  contract  to  carry  out  the  terms 
of  the  ordinance. 

The  property  transferred  consisted  of  the  pumping  works, 
river  inlet  and  lands  belonging  therewith,  45  miles  of  street 
mains  and  hydrant  connections,  4  inches  and  16  inches  in 
diameter,  368  fire  hydrants,  and  2,084  service  pipes,  with  such 
appurtenances  as  usually  accompany  a  water  plant. 

Of  the  45  miles  of  pipes,  about  31.2  miles  remained  in  the 
system,  9.3  miles  were  taken  up  and  relaid,  and  4.5  miles  of  the 
small  pipes  were  abandoned,  disappeared  in  some  manner,  or 
never  existed. 

The  structural  value  of  the  old  plant  as  a  part  of  the 


new,  is  estimated  at  . .'$225,000 

The  going  value .  75,000 


Total  value  of  the  property . $300,000 


Leaving  $150,000  as  the  cost  of  the  franchise  to  Moffett, 
Hodgkins  &  Clarke. 

The  works  specified  in  the  ordinance  granted  to  Moffett, 
Hodgkins  &  Clarke  were  to  be  a  combined  “direct  pumping  and 
reservoir  system/’ 

There  were  to  be  three  compound  pumping  engines,  each 
with  a  capacity  of  not  less  than  6,000,000  gallons  in  24  hours. 

The  distribution  system  was  to  have  75  miles  of  street  mains, 
of  which  not  more  than  17  miles  were  to  be  4  inches  in  diameter, 
and  not  exceeding  23  miles,  6  inches  in  diameter. 

A  30-inch  main  was  to  extend  from  the  pumping  works  to 
the  court  house  square.  It  was  built  beyond  the  square,  and 
has  a  length  of  16,180  feet.  The  30-inch  main  connecting  the 
distribution  system  with  the  reservoir  is  5,273  feet  in  length. 

One  thousand  fire  hydrants  were  to  be  set  along  the  75  miles 
of  street  mains. 

One  earthen  reservoir  was  built,  having  a  capacity  of  18,- 
000,000  gallons,  and  two  elevated  steel  water  tanks,  having  a 
capacity  of  500,000  gallons  each.  The  flow  line  of  the  reservoir 

32. 


and  tanks  was  to  be  220  feet  above  the  corner  stone  of  the  court 
house,  or  320  feet  above  city  datum. 

Some  years  after  the  tanks  were  built  one  of  them  collapsed, 
and  the  other  one  was  subsequently  dismantled. 

The  franchise  ordinance  provided  that  the  grantees  should 
at  their  own  expense  investigate  for  a  source  of  supply,  and  that 
the  water  furnished  should  be  clear  and  wholesome,  of  such 
standard  or  purity  as  to  secure  the  approval  of  the  City  Council, 
and  that  before  the  then  water  works  system  should  be  con¬ 
veyed  to  them,  a  sample  of  water  and  source  of  supply  should  be 
accepted  by  the  council. 

The  present  pumping  works  are  located  on  the  Illinois  river, 
and  near  to  the  tracks  of  the  Rock  Island  railroad,  6,400  feet 
above  the  city  limits,  and  15,400  feet  from  the  court  house  square. 

The  reservoir  is  located  to  the  northwest  of  the  pumping 
station,  and  one  mile  distant  therefrom,  in  a  direct  line.  The 
reservoir  and  pumping  station  both  being  outside  the  city.  The 
Village  of  Averyville  lying  between  the  pumping  works  and 
the  city,  and  is  supplied  with  water  by  the  Company. 

The  water  supply  system  as  actually  built  and  in  operation 
today,  consists  of  one  main  central  open  well,  containing  a  steel 
collecting  tank  on  the  inside,  which  is  supported  by  pipe  posts 
sunk  to  the  rock,  with  which  the  suction  pipes  leading  to  the 
pumps  connect. 

In  addition  to  this  there  are  seven  subsidiary  wells,  located 
up  and  down  the  river  for  a  distance  of  4,580  feet.  The  extreme 
southerly  one  being  1,250  feet  from  the  central  well,  and  the 
extreme  northerly  one,  3,330  feet  therefrom.  One  of  these  sub¬ 
sidiary  wells  is  just  being  completed,  and  as  yet  has  furnished 
no  water. 

The  water  is  conveyed  from  the  two  southerly  wells  to  the 
central  well  through  a  wooden  stave  conduit,  20  inches  in 
diameter,  and  from  the  northerly  gang  of  wells  through  a  24- 
inch  sewer  pipe  conduit  laid  to  a  grade. 

In  most  of  these  wells,  including  the  central  well,  vertical 
centrifugal  pumps,  operated  by  Pelton  water  motors,  are  in¬ 
stalled,  the  motors  being  operated  by  water  supplied  by  the 
main  pumps. 

Electric  motors  are  being  substituted  for  these  hydraulic 
motors,  thus  relieving  the  main  city  supply  pumps  of  this  work. 

The  water  is  contained  in  an  underlying  stratum  of  gravel 
and  sand  that  lies  above  bed  rock.  Above  this  stratum,  that  is 
of  varying  thickness  and  consistency,  is  a  bed  of  practically  im¬ 
pervious  clay. 

Inside  of  the  wells  there  are  perforated  steel  caissons  in 
which  the  centrifugal  pumps  are  placed,  the  water  being  drawn 

33 


through  the  perforated  shells  of  the  caissons,  which  act  as 
strainers  in  holding  back  the  sand  and  gravel. 

The  extreme  bottom  of  these  caissons  are  generally  sunk  to 
a  level  of  from  6  to  10  feet  below  city  datum. 

The  level  of  the  extreme  high  water  in  the  Illinois  river  at 
the  upper  free  bridge,  near  to  the  pumping  station,  is  46.15  feet 
above  city  datum.  As  the  walls  of  the  wells  are  carried  above 
high  water,  the  total  depths  of  the  wells  vary  from  53  to  perhaps 
57  feet. 

Extreme  low  water  in  the  river  at  the  upper  free  bridge  is 
given  as  22.55  feet  above  city  datum. 

With  no  draught  on  the  wells,  the  level  of  the  water  in 
them  is  approximately  the  same  as  the  river  level,  but  when 
being  pumped,  the  level  drops  below  the  river  level,  variable  dis¬ 
tances,  depending  upon  the  quantity  of  water  being  drawn,  and 
the  amount  of  the  underground  water  supply. 

As  none  of  the  water  appears  to  come  from  the  river,  the 
available  supply  varies  with  the  surface  supply  that  reaches 
the  water  bearing  stratum. 

With  a  minimum  ground  water  supply,  coincident  with  a 
low  river  stage,  the  surface  of  the  water  in  the  well  would  reach 
its  lowest  level. 

In  November,  1908,  the  low  water  stage  of  the  river  was 
30.5  feet  and  the  level  of  the  water  in  the  small  wells  sunk  inside 
of  the  central  well  was  8.5  feet,  a  difference  of  22  feet. 

On  March  9  and  13,  1908,  the  river  stage  was  45.50  feet,  near 
to  extreme  high  water,  the  well  at  same  date  was  41  feet. 

August  9  and  11,  1909,  with  a  pumping  rate  of  10,000.000 
gallons  per  day,  the  river  stage  was  32.8  feet  and  the  well  17 
feet,  a  difference  of  15.8  feet. 

During  June  and  July,  1910,  the  limit  of  the  present  supply 
seemed  to  have  been  reached,  and  it  is  believed  that  the  limit  of 
the  developed  water  bearing  field  has  also  been  reached,  and  that 
it  cannot  be  increased  by  expanding  its  boundaries.  For  this 
reason  a  new  field,  about  2^4  miles  above,  on  the  river,,  has 
been  investigated  and  the  property  acquired. 

The  Peoria  Water  Works  Company,  in  its  own  name,  and 
in  the  name  of  the  Richwoods  Water  Company,  has  acquired 
about  205  acres  of  land,  including  the  pump  house  and  reservoir 
tracts,  and  76  individual  lots,  much  of  it  lying  to  the  north  and 
west  of  the  pump  house.  It  has  also  secured  the  right  to  control 
the  use  of  88  acres  more. 

With  the  exception  of  the  pump  house  and  reservoir  tracts, 
and  the  strip  of  land  stretching  up  and  down  the  river,  upon 
which  the  wells  have  been  developed,  all  of  these  lands,  and 
rights  of  control,  have  been  acquired  to  protect  the  water  supply 
from  possible  contamination,  real  or  hypothetical. 

34 


Taking  counsel  of  the  experience  with  a  water  supply  drawn 
raw  from  the  Illinois  river,  which  received  the  drainage  of  num¬ 
erous  cities  between  Peoria  and  Chicago,  and  along  the  Kan¬ 
kakee  river,  as  also  a  large  part  of  the  sewage  of  Chicago,  the 
council  inserted  stringent  provisions  in  the  water  works  ordin¬ 
ance  to  guard  against  contamination. 

A  part  of  Section  6  reads : 

‘'The  City  Council  shall  have  the  right  to  examine 
from  time  to  time  the  quality  of  the  water  supplied,  and 
the  grantees  agree  to  maintain  and  furnish  during  the 
continuance  of  this  franchise,  water  of  as  good  or  better 
quality  than  that  of  the  sample  originally  furnished  and 
accepted  by  the  city,  and  said  grantees  agree  to  maintain 
and  keep  said  source  of  supply  in  the  best  possible  state 
of  purity,  and  to  take  every  possible  precaution  to  pro¬ 
tect  the  same  from  contamination  or  pollution  from  any 
source  whatever.  In  no  case  is  the  supply  of  water  to  be 
taken  from  the  Illinois  river,  nor  from  a  location  that 
would  be  subject  to  drainage  from  any  cemetery.  Said 
location  of  water  supply  shall  be  north  or  northeast 
from  the  northern  part  of  the  city  limits. 

“It  is  expressly  understood  and  agreed  by  and 
between  the  parties  hereto  that  in  case  said  grantees 
shall  fail  to  comply  with  the  provisions  of  this  section 
requiring  said  grantees  to  supply  the  inhabitants  of  the 
City  of  Peoria  with  clear  and  wholesome  water,  said 
grantees  shall  thereby  forfeit  to  the  City  of  Peoria  the 
sum  of  one  hundred  and  twenty-five  dollars  ($125.00) 
per  day  for  each  and  every  day  they  shall  fail  for  any 
reason  to  supply  such  clear  and  wholesome  water  as 
aforesaid ;  provided,  that  the  City  Council  of  the  City  of 
Peoria  shall  first  cause  to  be  given  to  said  grantees 
through  any  officer  of  said  company,  or  agent  in  charge 
of  said  company’s  business  in  the  City  of  Peoria,  fif¬ 
teen  days’  notice  that  said  water  has  been  pronounced 
impure  and  unwholesome  and  not  up  to  the  standard 
prescribed  by  the  said  City  Council.  The  said  amount 
to  be  recoverable  of  and  from  said  company  in  an  action 
of  debt  by  and  in  the  name  of  the  City  of  Peoria.” 

On  taking  over  the  old  city  works,  November  1,  1889,  Mof¬ 
fett,  Hodgkins  &  Clarke  proceeded  to  the  rehabilitation  of  the 
distribution  system,  and  to  the  construction  of  the  new  parts  of 
the  works  hereinbefore  described.  Construction  continued 
through  1890  and  1891,  and  was  so  far  advanced  early  in  the 
year  1892 — probably  about  February — that  water  was  supplied 


35 


from  the  new  central  well  by  the  new  pumps.  The  other  wells 
not  being  included  in  the  Moffett  and  Clarke  contracts  were  not 
installed  by  them. 

On  May  21,  1892,  the  Peoria  Water  Company  notified  the 
city  that  they  had  completed  all  the  extensions  and  enlargements 
of  the  water  works,  and  were  ready  for  a  test  under  the  or¬ 
dinance. 

On  June  3  and  4,  1892,  Professor  J.  B.  Johnson  made  a  test 
of  the  works  for  the  city,  and  reported  that  all  of  the  require¬ 
ments  of  the  ordinance  relative  to  fire  streams  and  water  supply 
had  been  fully  complied  with.  And  on  July  25th  the  City  Council 
formally  accepted  them. 

During  the  period  from  November  1,  1889,  to  the  acceptance 
of  the  works,  July  25th,  1892,  the  old  city  works  and  the  new 
ones  were  operated  in  turn  by  Moffett,  Hodgkins  &  Clarke. 

After  the  latter  date,  and  until  the  appointment  of  a  receiver, 
January  8,  1894,  the  plant  was  operated  by  the  Peoria  Water 
Company. 

The  receiver  continued  in  charge  of  the  plant  until  January 
14,  1898,  when  the  property  was  sold  to  trustees  for  the  bond¬ 
holders  under  decree  of  foreclosure. 

On  July  20,  1898,  the  trustees  conveyed  the  plant  to  the 
Peoria  Water  Works  Company,  which  has  operated  it  since 
that  time. 

During  each  of  the  periods  of  ownership  and  control,  since 
the  works  were  accepted  by  the  city  July  25,  1902,  more  or  less 
construction  work  has  been  done,  and  lands  purchased,  much  of 
which  stands  in  the  name  of  the  Richwoods  Water  Company. 

The  Richwoods  Water  Company  was  incorporated  in  1898, 
during  the  reorganization  following  the  foreclosure  sale,  to  take 
over  a  part  of  the  water  supply  works  that  had  previously  been 
built,  and  to  develop  them  to  a  greater  extent  subsequently;  to 
acquire  lands  needed  for  the  extension  and  protection  of  the 
water  supply,  and  to  take  over  all  of  the  distribution  system 
lying  outside  of  the  then  city  limits,  except  the  30-inch  mains 
leading  to  the  city  and  to  the  reservoir. 

This  Company  also  acquired  the  rights  and  franchises 
granted  by  the  Villages  of  North  Peoria,  South  Peoria  and 
Averyville,  and  rights  in  the  upland  addition  to  the  City  of 
Peoria.  It  also  owns  the  franchise  for  the  Village  of  Bartonville, 
and  the  pipe  system  supplying  that  village  and  adjacent  territory. 

THE  FINANCIAL  SIDE  OF  THE  TWO  COMPANIES 
that  own  the  property  constituting  the  Peoria  Water  Works, 
has  been  approached  with  difficulty,  and  with  more  or  less  un¬ 
certainty.  But  by  culling  from  the  original  franchise  ordinance 
and  the  amendments  thereto,  from  the  petition  for  an  injunction 
in  the  case  of  the  Peoria  Water  Works  Company  vs.  the  City  of 

36 


Peoria,  filed  in  the  Circuit  Court  of  the  United  States,  for  the 
Southern  District  of  Illinois,  on  the  19th  day  of  June,  1908;  from 
the  City  Council  records,  and  from  the  inventories  of  the  property 
belonging  to  the  two  companies,  and  by  inquiries  made  from  time 
to  time  of  persons  connected  with  the  affairs  of  the  Peoria  Water 
Company,  material  for  a  financial  statement,  which  is  believed  to 
be  substantially  correct,  was  obtained. 

A  statement  of  the  revenue  and  operating  expenses  of  the 
plant,  from  November,  1889,  to  1903,  inclusive,  was  also  furn¬ 
ished.  From  1904  to  1908  inclusive,  we  have  the  auditor’s  figures- 

The  Peoria  Water  Company,  incorporated  June  2,  1889,  with 
a  capital  of  $1,000,000,  executed  and  delivered  to  the  City  cf 
Peoria,  October  25th,  1889,  two  non-negotiable  bonds,  in  the 
sum  of  $225,000  each,  one  maturing  in  19  years  and  the  other  in 
30  years.  These  bonds  were  secured  by  a  first  mortgage  on  the 
property  of  the  Company,  and  were  given  to  secure  the  payment 
by  the  Peoria  Water  Company  of  $450,000  of  Peoria  City  bonds, 
that  had  been  issued  on  account  of  the  old  water  works. 

Upon  their  delivery,  the  City  of  Peoria  deeded  the  original 
water  works  to  the  Company. 

The  following  is  a  list  of  said  city  bonds,  with  the  annual 
interest.  See  Sec.  2  of  ordinance : 

$  33,000  of  6  per  cent  bonds,  due  August  1,  1889,  interest.  .$  1,980 
108,000  of  7  per  cent  bonds,  due  April  1,  1890,  interest.  .  7,560 

12,000  of  7  per  cent  bonds,  due  August  1,  1890,  interest..  840 
2,000  of  7  per  cent  bonds,  due  April  1,  1891,  interest.  .  140 


$10,520 

50,000  of  7  per  cent  bonds,  due  May  15,  1899,  interest.  .$  3,500 
50,000  of  5  per  cent  bonds,  due  May  15,  1901,  interest.  .  2,500 
195,000  of  4 y2  per  cent  bonds,  due  June  1,  1908,  interest..  8,775 


$14,775 

The  Peoria  Water  Company  executed  an  issue  of  $2,000,000, 
6  per  cent,  30  year  bonds,  bearing  date  November  1,  1889,  pay¬ 
able  toffhe  Atlantic  Trust  Company  of  New  York,  secured  by  a 
trust  deed  to  the  said  Trust  Company  as  trustee. 

In  this  connection  it  should  be  said  that  as  long  as  these  city 
bonds  were  outstanding  the  interest  on  $295,000  of  them,  those 
maturing  in  1899  and  later,  was  always  paid  by  the  city,  and  the 
amount  thereof  deducted  from  the  hydrant  rental,  thereby  reduc¬ 
ing  the  apparent  net  income  of  the  works  by  that  amount. 

Moffett,  Hodgkins  &  Clarke  paid  $155,000  of  them  soon 
after  the  city  works  were  taken  over,  with  the  interest  thereon 
to  the  time  of  redemption. 


37 


This  statement  is  verified  by  the  statement  of  revenue  and 
operating  expenses  furnished. 

Moffett,  Hodgkins  &  Clarke  were  to  receive  from  the  Com¬ 
pany  in  payment  of  the  work  done  under  their  contract,  $1,050,000 
of  the  6  per  cent  bonds  of  the  Company,  and  $200,000  of  the  Com¬ 
pany  stock. 

On  the  acceptance  of  the  works,  July  25,  1892,  the  Company 
had  parted  with,  or  was  under  obligations  to  part  with,  a  suf¬ 
ficient  amount  of  their  bonds  to  pay  the  contract  price  of  $1,050,- 
000  in  bonds,  to  reimburse  Moffett,  Hodgkins  &  Clarke  for  the 
$155,000  city  bonds,  with  interest,  and  to  pay  for  certain  extra 
work  done  by  Moffett,  Hodgkins  &  Clarke. 

As  a  result  of  the  contract  with  the  Peoria  Water  Company 
Moffett,  Hodgkins  &  Clarke,  Incorporated,  were  thrown  into  the 
hands  of  a  receiver  and  their  affairs  liquidated. 

The  Peoria  Water  Company  also  was  unable  to  carry  the 
load  which  had  been  assumed,  and  defaulted  in  the  payment  of 
interest  due  May  1,  1893,  or  for  that  due  earlier  as  well,  or,  at 
any  rate,  the  default  was  made,  less  than  one  year  after  the 
acceptance  of  the  works  by  the  city. 

Because  of  this  default  a  receiver  was  applied  for  by  the 
Atlantic  Trust  Company,  and  Cornelius  B.  Gold  was  appointed 
receiver  by  the  Circuit  Court  of  the  United  States,  January 
8,  1894. 

The  Trust  Company  set  out  in  its  bill  of  complaint  that 
there  was  then  due  the  purchasers  of  the  Company’s  bonds, 
$1,381,475. 

That  this  sum  properly  represented  the  Company’s  liabil¬ 
ities,  exclusive  of  $295,000  city  bonds,  then  outstanding,  is  shown 
by  the  following  considerations  and  financial  statement. 

In  addition  to  the  liabilities  incurred  under  the  Moffett. 
Hodgkins  &  Clarke  contract,  construction  work  had  been  done 
by  the  Company,  between  July  25,  1892,  and  January,  1894, 
estimated  to  cost  $11,228. 

Interest  had  been  paid,  or  had  accrued,  on  the  $1,050,000  con¬ 
tract  bonds,  from  about  July  1,  1890,  to  the  time  of  the  receiv¬ 
ership. 

Interest  had  also  been  paid,  or  had  accrued,  on  the  bonds 
issued  to  take  up  $155,000  of  city  bonds,  with  interest,  as  well  as 
for  the  extra  work  done  by  Moffett,  Hodgkins  &  Clarke. 

As  an  offset  to  these  liabilities  $138,912  of  net  earnings  had 
been  received,  between  November  1,  1889,  and  November  1,  1893. 

Neither  Moffett,  Hodgkins  &  Clarke  or  the  Peoria  Water 
Company  were  able  to  realize  on  their  thirty  year,  6  per  cent 
second  mortgage  bonds,  more  than  90  cents  on  the  dollar,  so  that 
in  estimating  the  cost  of  work,  or  the  cost  of  funding  city  bonds, 

38 


or  cash  obligations  of  any  kind,  it  must  be  done  on  a  90  per 
cent  basis. 

The  indebtedness  of  the  Company,  January,  1894,  was  made 
up  of  the  following  items : 

Moffett,  Hodgkins  &  Clarke  contract  bonds . $1,050,000 

Interest  on  same  for  3  years  and  6  months,  6  per  cent.  .  220,500 

$155,000  city  bonds  funded  on  basis  of  90  cents  on  the 

dollar .  172,222 

Interest  on  same  for  4  years,  2  months,  6  per  cent .  33,055 

Construction,  July  25,  1892,  to  January,  1894 .  11,228 

Extra  work  done  by  Moffett,  Hodgkins  &  Clarke,  ex¬ 
pense  of  Company,  etc.,  to  balance .  33,382 

Total  outlay  to  January,  1894 . $1,520,387 

Less  net  revenue  for  4  years .  138,912 

Indebtedness,  January,  1894,  not  including  $295,000 
city  bonds . $1,381,475 

It  should  not  be  assumed  that  this  statement  would  be  veri¬ 
fied  in  detail  by  the  entries  on  the  Company’s  books. 

The  items  most  liable  to  vary  from  the  actual,  are  the  con¬ 
struction  item  of  $11,228,  the  interest  item  of  $220,500  on  the 
contract  bonds,  as  there  is  nothing  definite  as  to  when  the  in¬ 
terest  should  begin  to  run,  and  the  $33,382  for  extras,  interest 
and  expenses,  the  amount  of  which  was  determined  by  the  neces¬ 
sity  of  a  balance.  It  might  very  well  be  that  the  construction 
item  and  the  interest  on  the  construction  bonds  are  too  low,  and 
this  item  too  high.  But  that  $1,381,475  may  be  accepted  as  the 
proper  indebtedness  of  the  Company,  January,  1894,  exclusive  of 
$295,000  of  city  bonds,  admits  of  no  reasonable  doubt. 

This  sum  takes  no  cognizance  of  the  losses  of  Moffett, 
Hodgkins  &  Clarke,  which  are  said  to  have  been  large. 

The  receiver  operated  the  plant  for  the  years  1894  to  1897, 
inclusive,  and  January  14,  1898,  the  property  was  sold,  under  a 
decree  of  foreclosure,  to  trustees  for  the  bond  holders,  for  $1,- 
500,000,  subject  to  outstanding  city  bonds  to  the  amount  of 
$295,000. 

The  question  arises,  does  $1,500,000  cover  the  outlay  on  the 
total  property  up  to  the  date  of  sale?  Evidently  not,  as  is  ob¬ 
vious  from  the  following  considerations : 

As  has  been  seen,  it  was  impossible,  during  the  early  years, 
for  the  Company  to  realize  on  their  thirty  year,  second  mortgage, 
6  per  cent  bonds,  more  than  90  cents  on  the  dollar,  and  much 
less  could  the  interest  charges  have  been  reduced  during  the 
receivership. 


39 


The  net  income  for  the  four  years  of  the  receivership  was 
$199,960. 

The  total  indebtedness  of  the  Company,  January,  1894,  on  a 
cash  basis,  was,  as  has  been  seen,  $1,381,475. 

The  estimated  cost  of  the  construction  work  done  and  prop¬ 
erty  purchased,  from  1894  to  1897,  inclusive,  is  $114,265.  Hence 
the  following  statement: 

Indebtedness  January,  1894,  not  including  city  bonds.  .$1,381,475 
Interest  on  $1,381,475  indebtedness  for  4  years  at  6 


per  cent .  381,554 

Estimated  cost  of  construction  for  4  years .  114,265 


$1,827,294 

Less  total  net  earnings  for  the  four  years  after  deduct¬ 
ing  from  the  revenue,  the  interest  paid  by  city  on 
$295,000  city  bonds .  199,960 

Total  outlay  and  obligations,  exclusive  of  city 

bonds,  to  January,  1898 . $1,627,334 

which  is  $127,334  in  excess  of  the  price  for  which  the  property 
sold. 

The  question  arises,  how  did  the  Company  take  care  of  this 
surplus  indebtedness? 

The  answer  may  be  found  in  the  Richwoods  Water  Com¬ 
pany,  which  was  organized  simultaneously  with  the  organization 
of  the  Peoria  Water  Works  Company. 

The  inventory  of  the  property  of  the  Richwoods  Company 
shows  that  it  holds  title  to  a  large  part  of  the  property  con¬ 
structed  and  acquired  during  the  receivership,  which  is  included 
in  the  $114,265  of  construction  outlays. 

Evidently  the  $200,000  bonds  of  this  Company  were  used  to 
take  up  this  surplus,  and  to  acquire  other  property. 

The  capital  stock  of  the  Peoria  Water  Works  Company  is 
$100,000,  and  the  bonds  of  the  two  companies  aggregate  $2,- 
200,000. 

With  the  organization  of  these  companies  there  was  a  re¬ 
adjustment  of  the  bonded  indebtedness  of  the  defunct  Peoria 
Water  Company. 

The  holders  of  the  bonds  then  outstanding  consented  to  a 
scaling  of  their  interest  from  6  per  cent  to  4  per  cent,  the  2  per 
cent  difference  being  capitalized  at  5  per  cent  and  income  cer¬ 
tificates  issued  therefor. 

These  certificates  were  subsequently  exchanged  for  4  per 
cent  debenture  bonds,  at  the  rate  of  50  cents  on  the  dollar.  The 
debentures  amounting,  it  is  said,  to  $142,900.  Interest  was  paid 

40 


on  these  debentures  for  only  a  few  years,  and  no  dividends  have 
at  any  time  been  paid,  it  is  said. 

These  bond  transactions  during  the  reorganization  are  not 
fully  verifiable  in  all  of  their  details.  Hence  the  amount  of  in¬ 
terest  paid  on  account  of  the  $2,200,000  bonds  of  the  two  com¬ 
panies,  and  the  outstanding  debenture  bonds,  since  the  receiver¬ 
ship  cannot  be  exactly  determined. 

The  petition  filed  by  the  Company  in  the  rate  case,  June, 
1908,  avers  that  the  average  annual  interest  paid  during  the  then 
last  nine  years  was  $86,798.39. 

Subsequent  to  the  organization  of  the  Peoria  Water  Works 
Company  it  paid  the  whole  amount  of  the  outstanding  city  bonds 
as  follows : 


May  15,  1899  . $  50,000 

May  15,  1901  .  50,000 

On  or  before  February  1,  1905 .  195,000 


As  before  stated,  until  these  bonds  were  taken  up,  the  city 
paid  the  interest,  and  charged  the  amount  against  hydrant  rental, 
but  in  order  to  meet  them  the  Company  had  to  dispose  of  some 
of  its  own  bonds,  or  of  the  bonds  of  the  Richwoods  Water  Com¬ 
pany,  which  could  not  be  done  on  better  terms  than  90  cents  on 
the  dollar,  with  an  equivalent  interest  rate  of  not  less  than  6 
per  cent. 

The  transaction  that  resulted  in  scaling  the  interest  to  4  per 
cent,  and  capitalizing  2  per  cent  in  the  manner  described  above, 
made  no  material  difference  in  the  Company’s  liabilities,  the  prin¬ 
cipal  advantage  being  that  it  reduced  the  first  lien  indebtedness 
so  as  to  lessen  the  danger  of  another  receivership. 

Hence  the  better  way  to  determine  the  approximate  actual 
cost  of  the  property  of  the  two  companies,  to  the  end  of  the  year, 
1908,  is  to  compute  the  interest  at  6  per  cent  for  eleven  years  on 
$1,627,334,  the  cost  of  the  works  January,  1898,  exclusive  of  city 
bonds,  and  to  fund  the  principal  of  the  city  bonds  at  the  date  of 
payment,  on  a  90  per  cent  basis,  and  add  the  interest  at  6  per  cent 
from  the  date  the  bonds  were  paid,  to  December  31,  1908. 

Also  add  the  cost  of  construction  during  the  eleven  years, 
with  interest  at  6  per  cent,  which,  as  estimated,  amounts  in  all  to 
$320,709,  and  reduce  the  sum  thus  found  by  the  net  earnings  for 
the  same  period. 

The  following  is  a  statement  of  the  cost  of  all  the  property  of 
the  two  companies  to  December  31,  1908,  computed  on  the  speci¬ 
fied  basis : 


41 


Cost  of  plant,  exclusive  of  city  bonds,  January,  1898.  .  .$1,627,334 

Simple  interest  at  6  per  cent  for  eleven  years .  1,073, (HO 

$50,000  city  bonds  paid  May  15,  1899,  funded  at  90 

per  cent  .  55,555 

Interest  on  same,  6  per  cent  for  9.5  years .  31,666 

$50,000  city  bonds,  paid  May  15,  1901,  funded  at  90 

per  cent  .  55,555 

Interest  on  same,  6  per  cent  for  7.5  years .  25,000 

$195,000  city  bonds  paid  February  1,  1905,  funded  at 

90  per  cent .  216,666 

Interest  on  same,  6  per  cent  for  3  years  and  11  months.  50,920 

Construction,  1898  to  1903  .  183,057 

Interest  on  same,  6  per  cent  for  8  years . .  87,857 

Construction,  1904  to  1908 .  137,652 

Interest  on  same,  6  per  cent  for  2  years .  16,518 


Total . $3,560,820 

Less  net  income  for  11  years  after  paying  in¬ 
terest  on  $295,000  city  bonds  up  to  the 
time  of  their  redemption, as  shown  above. 

Net  income  1898  to  1903  inclusive . $524,175 

Net  income  1904  to  1908  inclusive .  701,843  1,226,018 


Total  net  outlay,  or  cost  of  property,  December 

31,  1908,  not  including  depreciation . $2,334,802 

The  foregoing  statement  gives  no  consideration  to  depreci¬ 
ation,  which  should  be  provided  for  from  the  earnings,  and  which, 
if  applied,  would  reduce  the  net  earnings  by  the  amount  of  the 
depreciation,  and  hence  increase  the  cost  of  the  plant  by  the  same 
amount. 

In  the  valuation  of  March  24th  the  total  depreciation  was 
found  to  be  $191,445.  This  added  to  the  above  footing  gives  $2,- 
526,247. 

The  construction  items,  aggregating  $434,974,  entering  into 
this  sum,  are  liable  to  a  variation  from  the  actual,  because  the 
prices  used  in  the  estimates  may  have  been  different  from  those 
actually  paid. 

On  the  other  hand,  there  have  been  carried  net,  and  not  fund¬ 
ed  at  90  per  cent,  which  is  the  equivalent  of  a  10  per  cent  discount. 

By  taking  off  $76,247,  full  allowance  will  be  made  for  the  cost 
of  the  two  water  tanks  with  interest,  which  are  not  now  a  part 
of  the  plant,  and  the  total  cost  will  stand  $2,450,000. 

This  may  properly  be  considered  a  conservative  determina¬ 
tion  of  the  investment  by  the  “original  cost  and  deficit”  method. 
This  sum  is  not  the  result  of  compounding  deficits,  and  does  not 
exceed  what  it  would  have  been  if  determined  on  a  7  per  cent 

42 


simple  interest  basis,  without  a  bond  discount.  And  7  per  cent  is 
believed  to  be  only  a  fair  rate  of  return  on  capital  used  in  the 
operation  of  public  utilities,  under  such  conditions.  See  pp.  43 
to  47  of  this  report. 

On  March  24,  when  the  valuation  of  $2,150,000  was  reported, 
many  of  these  facts  were  not  at  hand,  and  none  had  been  an¬ 
alyzed.  No  attempt  having  been  made  to  compare  results  by  the 
two  methods  of  obtaining  the  investment. 

The  outcome  of  this  comparison  properly  suggests  the  de¬ 
sirability  of  a  fuller  consideration  of  the  method  used  in  finding 
the  investment  of  $2,150,000. 

THE  INVESTMENT  FOR  THE  PEORIA  WATER  WORKS 

In  the  general  discussion  of  methods  of  valuation,  found 
on  pages  10  to  29  of  this  report,  the  first  method  considered, 
viz :  the  finding  of  the  plant  value  as  a  going  concern,  and  as 
of  the  time  of  valuation,  on  the  hypothesis  of  reproduction, 
was  held  to  be  the  proper  one. 

In  this  valuation  the  plant  value  was  enhanced,  in  two 
items,  $316,020  in  all,  because  of  its  acquired  business,  that  is, 
for  the  going  value  element. 

The  manner  of  estimating  this  element  was  not  gone  into, 
nor  did  the  report  contain  anything  indicating  its  actual  total 
amount  as  determined,  although  it  had  been  approximately  es¬ 
timated  as  amounting  to  more  than  twice  the  sum  given. 

For  the  purpose  of  this  report,  a  more  extended  and  care¬ 
ful  estimate  has  been  made,  and  the  total  amount  found  to  be 
$856,096,  based  on  an  investment  of  $1,950,000,  the  reproduc¬ 
tion  cost  of  the  property,  as  given  in  the  report  of  March  24. 

But  with  an  investment  sum  of  $2,150,000  for  the  present 
plant,  its  going  value  would  be  reduced  by  $200,000,  the  differ¬ 
ence  between  $1,950,000  and  $2,150,000,  making  it  $665,096. 

On  this  basis  there  is  left  $665,096  less  $316,020,  equal  to 
$349,076,  of  the  going  value  element,  which  is  unused,  that  is, 
it  remains  to  the  credit  of  the  plant,  which  if  taken  over  at  the 
price  of  $2,150,000,  would  have  $349,076  of  surplus  value. 

The  details  of  the  computation  of  this  going  value  is  given 
in  a  table,  which  is  accompanied  by  a  diagram  containing  the 
revenue  and  population  curves,  upon  which  the  computation  is 
based.  They  are  both  filed  Appendix  III. 

RETURNS. 

The  investment,  or  that  sum  which  should  be  credited  to 
a  public  utility,  having  been  determined,  the  question  arises  as 
to  what  per  cent  should  be  allowed  for  returns  on  the  invest- 


43 


ment,  that  is,  for  interest  and  profits,  after  operating  expense, 
maintenance,  taxes,  the  depreciation  and  renewals,  have  been 
provided  for. 

In  seeking  an  answer  to  this  question,  we  properly  turn 
to  court  decisions,  and  the  decisions  of  officials  clothed  with 
semi-judicial  functions. 

In  Wilcox,  et  al.,  representing  the  Public  Service  Com¬ 
mission  of  New  York,  vs.  Consolidated  Gas  Co.,  212  'U.  S.,  the 
Supreme  Court  of  the  United  States  says : 

“There  is  no  rule  as  to  any  particular  rate  which 
any  corporation  subject  to  legislative  control  in  the 
matter,  has  a  right  to  obtain  without  legislative  inter¬ 
ference.  It  depends  upon  circumstances  and  locality. 

In  this  particular  case,  with  reference  to  risk  attend¬ 
ing  the  business,  and  the  locality  where  it  is  carried 
on,  the  complainant  is  entitled  to  a  return  if  it  is  pos¬ 
sible,  of  six  per  cent  upon  the  fair  value  of  its  property 
actually  used  in  its  business  of  supplying  gas.” 

“The  less  the  risk,  the  less  the  right  to  any  un¬ 
usual  returns  upon  the  investment.” 

The  Court  points  out  that  in  the  valuation  of  the  plant'  the 
lower  court  had  allowed  $12,000,000  for  franchise  value,  which 
was  reduced  to  $7,781,000  by  the  Supreme  Court,  being  the 
amount  which  had  been  added  to  the  capitalization  of  the  plants 
at  the  time  of  consolidation.  Also  that  the  seven  constituent 
companies  down  to  the  time  of  consolidation  in  1884  had  been 
free  from  legislative  regulation  of  rates.  They  had  been  pros¬ 
perous  and  divided  very  large  earnings  in  dividends.  Several 
of  the  companies  had  averaged  from  their  creation  over  16  per 
cent  dividends.  Six  of  them  in  1884  upon  a  capital  which  had 
been  increased  by  earnings,  paid  18  per  cent  dividends,  and 
upon  the  money  in  it  would  have  been  25  per  cent. 

As  to  the  question  of  risk  in  that  case  the  Court  holds  that 
it  was  reduced  to  a  minimum,  having  a  monopoly  of  the  gas 
business  in  the  largest  city  in  America. 

The  Urbana  Ohio  Water  Works  furnishes  another  case 
where  the  rate  of  return  was  adjudicated. 

In  an  opinion  filed  November  8,  1909,  in  the  U.  S.  Circuit 
Court  for  the  Southern  District  of  Ohio,  deciding  two  cases  in 
equity,  viz:  No.  5773,  C.  H.  Venner  Co.  vs.  The  Urbana  Water 
Works,  and  No.  5805,  Robert  W.  Kirby,  Receiver,  vs.  The  City 
of  Urbana,  Judge  Thompson  allowed  on  the  value  of  the  plant, 
in  addition  to  operating  expenses  and  taxes,  one  per  cent  for 
depreciation,  one  and  eleven  one-hundredths  per  cent  for  ad¬ 
ministration,  and  six  per  cent  for  interest,  or  interest  and  re¬ 
turns.  This  is  in  addition  to  operating  expenses  and  taxes, 

44 


there  was  a  total  allowance  of  8.11  per  cent.  The  value  of  the 
property  which  was  being  operated  without  a  franchise  was  in 
the  judgment  of  the  Court,  $180,000,  of  which  $25,000  was  an 
allowance  for  going  value. 

In  considering  the  question  of  returns,  under  the  heads  of 
“Interest  and  Profits,”  page  129,  Antigo  Water  Case,  the  Rail¬ 
road  Commission  of  Wisconsin  say : 

“A  mere  physical  plant,  no  matter  how  perfect  or 
how  well  it  is  adapted  to  the  purpose  for  which  it  is 
intended,  amounts  to  but  little  unless  it  has  or  can  ob¬ 
tain  a  paying  business.  Without  business  it  is  a  dead 
mass  intsead  of  a  living  concern  earning  profits.  To 
have  profits  it  must  have  business,  or  customers  who 
avail  themselves  of  the  services  it  renders  at  rates  that 
yield  an  adequate  income.’' 

After  discussing  the  question  of  interest  on  the  invest 
ment,  and  pointing  out  that  with  public  utilities  generally  it 
may  legitimately  vary  over  a  range  of  4  to  7  per  cent  according 
to  the  circumstances  of  the  case,  the  Commissioners  add : 

“In  addition  to  the  operating  expenses,  including 
depreciation  and  the  amount  actually  paid  as  interest 
on  the  investment,  there  must  also  be  some  allowance 
for  those  who  carry  on  the  business  and  who  assume 
all  the  risks  and  responsibilities  connected  therewith. 

This  allowance  is  usually  called  profit  and  represents 
compensation  for  the  work  of  managing  the  business, 
for  the  risks  involved,  and  for  certain  other  efforts.” 

Speaking  of  the  Antigo  Water  Works  plant  specifically  the 
conclusion  is : 

“But  while  the  plant  under  investigation  has  to 
pay  rather  high  rates  of  interest,  its  financial  condition 
seems  to  us  fairly  sound,  and  there  is  every  reason  to 
believe  that  it  will  greatly  improve  in  the  near  future. 

Its  earnings  are  on  a  comparatively  sound  basis  and  its 
securities  would  seem  to  be  fairly  well  protected.  It 
appears  to  us,  that  for  interest  and  profits,  when  taken 
together,  a  surplus  of  about  7  per  cent  on  the  value  of 
the  plant  and  its  business  as  here  given,  is  probably 
sufficient  to  secure  both  the  capital  and  the  business 
capacity  required,  and  this  amount  we  therefore,  at 
this  time,  regard  as  a  reasonable  return  for  these  fac¬ 
tors  in  this  particular  case.” 

In  the  case  of  “State  Journal  Printing  Co.,  et  al.,  vs.  Madi¬ 
son  Gas  and  Electric  Co.,”  decided  March  8,  1910,  the  Railroad 

45 


I 


Commission  concludes,  after  an  extended  discussion  of  the  sub¬ 
ject  of  returns,  page  647 : 

“In  view  of  the  facts  that  have  thus  been  repre¬ 
sented  in  relation  to  this  subject,  it  may  be  said  that 
the  witnesses  for  the  respondent  placed  that  part  of 
the  return  on  the  investment  which  might  properly 
be  termed  profits  at  rather  high  figures;  and  that  un¬ 
der  the  circumstances  in  this  case  it  is  not  unreason¬ 
able  to  limit  the  profits  to  from  \y2  to  2  per  cent  on  a 
fair  valuation  of  the  electric  plant.  Such  rates,  in 
addition  to  an  allowance  of  6  per  cent  on  each  case  for 
interest,  would  seem  to  be  fair  to  the  present  owners, 
as  well  as  sufficient  to  secure  both  the  business  capacity 
and  capital  that  are  required  in  this  particular  case. 

It  would  not  be  unreasonable  to  limit  the  returns  for 
both  interest  and  profit  to  not  less  than  7y2  to  8  per 
cent  on  a  fair  valuation  of  the  gas  plant,  and  to  not  less 
than  8  per  cent  on  a  fair  valuation  of  the  electric 
plant.” 

In  view  of  the  foregoing  decisions,  and  in  consideration ,  of 
the  circumstances  and  conditions  under  which  the  Peoria 
Water  Works  Company  operates,  and  has  operated  its  prop¬ 
erty,  for  twenty  years,  there  would  seem  to  be  no  warrant  for 
concluding  that  less  than  7  per  cent  on  the  fair  investment 
value  of  the  Company’s  property  would  be  admissible  to  cover 
the  allowance  for  returns,  under  interest  and  profits. 

In  considering  the  weight  that  should  be  attached  to  the 
decisions  of  courts  touching  specific  rates  of  return,  it  must  be 
considered  that  the  questions  which  they  are  called  upon  to 
answer  are  quite  different  from  those  presented  to  an  adminis¬ 
trative  body  such  as  the  Wisconsin  Commission,  or  to  a  legis¬ 
lative  body,  as  a  City  Council,  engaged  in  making  a  schedule 
of  rates. 

The  courts  are  not  properly  rate  makers ;  their  function 
in  rate  cases  is  generally  to  decide  the  constitutional  question 
as  to  whether  a  specific  rate  fixed  by  some  proper  agency,  is 
or  is  not,  confiscatory.  The  view  which  a  judge  takes  under 
such  circumstances  is  dependent  to  a  large  extent,  upon  the 
doctrines  which  he  holds  relative  to  the  freedom  which  courts 
should  exercise  in  interfering  with  legislative  acts. 

If  he  is  a  close  constructionist  he  will  be  likely  to  let  a 
much  lower  rate  pass  without  interference  than  otherwise. 

And  the  fact  that  he  may  refuse  to  interfere  in  a  particular 
case  is  no  indication  that  he  sustains  the  rate  as  being  fair,  or 
even  as  being  proper  from  the  standpoint  of  the  official  or  legis¬ 
lator  charged  with  initiating  it.  Such  a  judge  is  likely  to  hold 

46 


that  the  burden  of  fairness  must  be  borne  by  the  legislator  or 
official,  and  that  he,  the  judge,  should  only  decide  the  question 
whether  the  property  is  being  destroyed. 

Hence,  if  one  is  seeking  precedents  as  to  the  proper  rate 
of  return,  the  highest,  and  the  ones  which  should  be  given  the 
greatest  weight,  are  those  originating  with  a  body  such  as  the 
Wisconsin  Commission,  who  are  not  only  specifically  charged 
by  the  legislature  to  perform  such  functions,  but  who  are  also 
charged  with  the  investigation  of  all  public  utilities  of  the  state, 
and  who  reach  their  decisions  after  a  full  hearing  of  the  facts 
involved  in  particular  cases,  and  class  of  cases. 

The  conditions  are  reversed  when  it  comes  to  questions  of 
principles  which  should  control  in  finding  the  value  of  the 
property.  It  is  pre-eminently  the  function  of  the  courts  to  say 
whether  the  present  value  of  the  property  should  be  found,  or 
whether  it  should  be  the  original  cost. 

Also  as  to  whether  if  costs  are  considered,  it  should  be 
only  as  evidence,  bearing  on  present  values,  or  as  constituting 
the  values  themselves. 

In  some  cases,  as  in  the  Urbana  Water  Works  case,  above 
referred  to,  the  court  is  called  upon  to  stand  in  the  position  of 
the  maker  of  rates.  Here  the  plant  was  in  the  hands  of  a  re¬ 
ceiver  of  the  court  finding  the  rate  of  return,  and  the  fairness 
of  the  rate  was  in  question  rather  than  the  constitutional  one 
of  confiscation. 


NEEDED  IMPROVEMENTS. 

Our  attention  has  been  called  by  the  Mayor  to  the  fact 
that  as  the  Water  Works  plant  is  now  built  and  operated,  the 
city  is  dependent  on  but  one  main  pipe  for  a  continuity  of 
supply. 

It  is  true  that  the  reservoir  when  well  filled,  holds  in  re¬ 
serve  a  sufficient  quantity  to  bridge  over  two  or  three  days. 
But  water  from  the  reservoir  must  reach  the  city  through 
the  same  pipe  that  conducts  the  direct  supply  from  the  pumps. 
A  break  occurring  anywhere  in  the  30-inch  main  feeder  over  a 
distance  of  9,600  feet,  would  shut  off  the  water  supply  com¬ 
pletely. 

We  are  informed  that  the  Board  of  Underwriters  objects 
seriously  to  this  condition  of  affairs. 

Without  doubt  their  objections  are  well  founded;  there 
should  be  another  main  that  will  give  two  distinct  feeder  lines 
from  the  pumping  station  to  the  most  remote  parts  of  the  dis¬ 
tribution  system. 

It  is  apparent  that  if  possible  the  new  main  should  follow 
an  entirely  new  route  that  will  command  the  high  territory  of 
the  city,  now  insufficiently  supplied,  while  at  the  same  time 

47 


feeding  the  down  town  territory,  and  aiding  in  the  equalization 
of  pressures  in  all  parts  of  the  city. 

The  present  distribution  system  labors  under  the  disad¬ 
vantage,  as  relates  to  the  property  above  the  bluffs,  that  the 
main  feeder  follows  low  lying  streets  running  parallel  with,  and 
rather  near  to  the  river,  and  must  distribute  the  water  from 
the  lower  levels  to  the  higher,  over  a  considerable  distance. 

The  new  main  should  be  located  so  that  it  will  reverse  the 
process  as  much  as  possible.  It  should  skirt  the  northern  and 
western  city  limits,  following  those  streets  which  are  unpaved 
and  without  pipes  where  possible,  and  it  should  feed  the  16-inch 
main,  that  now  supplies  the 'bluff  levels,  at  two  points. 

A  personal  examination  was  made  of  the  territory  that  such 
a  main  would  be  likely  to  traverse,  from  some  point  below  the 
reservoir  to  the  southwesterly  city  limits. 

By  the  information  thus  obtained,  and  with  the  aid  of  a  large 
scale  distribution  map,  a  route  has  been  approximately  located, 
and  is  shown  on  a  small  map  filed  herewith  and  marked  Appen¬ 
dix  IV. 

Starting  with  the  pumping  works,  another  30-inch  main,  is 
proposed,  following  parallel  with  the  old  one  and  connecting 
with  the  30-inch  branch  to  the  reservoir  at  Galena  road  and 
Harvard  avenue. 

The  reservoir  pipe  is  thence  followed  to  some  point  below 
the  reservoir,  say  Browm  avenue,  from  which  a  new  30-inch 
main  leads  westerly  and  southwesterly,  striking  Prospect  avenue 
at  its  intersection  with  Hill  avenue. 

Thence  it  follows  Prospect  avenue  and  McClure  avenue  to 
Peoria  avenue. 

At  this  point,  a  20-inch  branch  main  leads  south  on  Peoria 
avenue,  to  Illinois  avenue,  where  it  connects  with  the  present  16- 
inch  feeder  main. 

At  McClure  and  Peoria  avenues,  the  main  is  reduced  to  24- 
inch,  and  continues  west  on  McClure  avenue,  following  Eliza¬ 
beth  street,  Nebraska  avenue  and  Bourland  avenue  to  Main 
street,  where  it  again  connects  with  the  present  16-inch  feeder 
main. 

Here  it  reduces  to  20  inches  diameter  and  leads  west  on 
Main  street,  following  Institute  place,  Bradley  avenue,  Western 
avenue,  Millman  and  Bush  streets,  to  Lincoln  avenue.  Thence 
reduced  to  16  inches  in  diameter,  it  follows  Berrian,  Antoinette 
and  Griswold  streets  to  a  connection  with  the  Adams  street 
main. 

While  not  absolutely  necessary,  it  will  be  very  desirable 
to  cross  connect  the  present  16-inch  bluff  feeder  with  the  Jeffer¬ 
son  street  main  along  Fayette  and  Hamilton  streets,  as  shown 
on  the  map,  Appendix  IV. 


48 


THIS  SECOND  FEEDER  MAIN  as  described  is  made  up 
of  the  following  lengths  and  sizes : 

12,600  feet  of  30-inch 

15,000  feet  of  24-inch 

13,550  feet  of  20-inch 
7,600  feet  of  16-inch 

48,750  feet  total,  or  9^4  miles. 

The  estimated  cost  is  $220,000. 

Class  A  pipe  above  the  bluff. 

Class  B  pipe  below  the  bluff. 

ANOTHER  NEEDED  IMPROVEMENT  is  the  extension 
of  subsidiary  water  mains  generally  into  built  up  territory, 
where  there  is  property  to  protect  and  buildings  to  be  supplied. 

While  no  survey  has  been  made  to  determine  in  detail  the 
amount  of  pipe  needed  to  render  the  distribution  system  fully 
adequate  for  fire  protection  and  private  service,  it  is  believed 
from  the  examination  made,  and  the  lengths  of  mains  found 
requisite  in  cities  of  a  similar  class,  that  20  miles,  in  addition  to 
the  feeder  main,  will  not  more  than  fill  the  reasonable  require¬ 
ments 

The  cost  of  .such  mains,  approximately,  will  be  $6,500  per 
mile,  including  hyrants  and  valves,  or  $130,000  in  all. 

In  this  connection  it  should  be  remembered  that  up  to  July, 
1910,  the  total  mileage  was  only  102.6,  and  that  with  the  pro¬ 
posed  new  feeder  mains,  and  20  miles  of  subsidiary  mains,  there 
will  be  but  132  miles  in  all.  Also,  that  for  eighteen  years,  since 
1892,  only  27  miles  have  been  laid,  and  the  distribution  system 
has  consequently  fallen  much  behind  the  needs  of  the  city. 

AN  ADDITIONAL  PUMPING  UNIT  of  12,000,000  gal¬ 
lons  capacity  should  be  provided. 

The  cost  of  such  a  unit  will  depend  largely  on  the  character 
of  the  service  which  it  will  be  expected  to  render.  If  it  is  to  be 
merely  an  emergency  pump,  it  will  cost  very  much  less  than  if 
it  is  to  take  the  burden  of  the  work. 

On  the  supposition  that  the  present  pumps  are  to  be  used 
for  emergencies,  a  new  12,000,000  unit  set  and  housed  will  be 
likely  to  cost  not  less  than  $40,000,  and  it  may  cost  more,  de¬ 
pending  upon  the  type  of  machine  adopted. 

IF  THE  POLICY  OF  METERING  ALL  HOUSE  SER¬ 
VICES  is  adopted,  as  is  proposed  in  this  report,  under  the  head 
of  ‘‘Water  Consumption  and  Meters,”  there  will  be  not  less  than 
12,000  meters  to  install  within  three  years,  and  not  less  than 
2.000  new  service  pipes  to  lay. 


49 


The  meters  should  not  be  estimated  at  less  than  $12.50 
apiece  in  place,  which  will  make  the  total  cost  for  meters, 
$150,000.  The  service  pipes  will  be  likely  to  cost  $15.00  a  piece, 
or  $30,000  in  all. 

A  SUMMARY  OF  THESE  NEEDED  IMPROVE¬ 
MENTS  is  as  follows: 


9.25  miles  of  main  trunk  feeders . $220,000 

20  miles  of  subsidiary  mains .  130,000 

One  12,000  gallon  pump .  40,000 

12,000  meters  set .  150,000 

2,000  service  pipes .  30,000 


Total  . $570,000 


While  this  estimate  can  only  be  considered  approximate,  it 
may  be  assumed  to  substantially  represent  the  improvements 
that  ought  to  be  made  to  the  Peoria  water  plant  by  the  end  of 
the  year  1913. 

THE  NECESSARY  REVENUE  TO  CARRY  THIS  AD¬ 
DITIONAL  INVESTMENT  must  come  from  the  following 
sources : 

1.  Increase  in  hydrant  rentals  because  of  the  increased 
mileage  of  water  mains. 

2.  New  consumers  on  the  lines  of  the  new  mains. 

3.  An  increased  number  of  consumers  on  the  lines  of  the 
present  street  mains,  due  to  the  natural  growth  of  the  city,  and 
to  the  gradual  connecting  of  houses  not  now  using  water. 

4.  The  abolishment  of  the  free  list  of  water  takers,  and  the 
turning  of  what  is  now  a  continual  loss,  into  an  equally  con¬ 
tinuous  revenue. 

5.  As  new  meters  are  set,  and  houses  now  having  meters 
are  put  on  a  new  scale  of  rates,  the  latter  should  be  so  fixed  that 
the  meter  service  will  carry  itself.  That  is,  one  element  of  the 
meter  rate  should  be  made  to  cover  the  extra  expense  of  opera¬ 
tion  incurred  by  their  introduction,  as  well  as  the  interest  and 
renewals  on  the  meters. 

This  will  reduce  the  investment  for  which  general  provi¬ 
sion  must  be  made,  to  $420,000. 

IT  IS  CONFIDENTLY  BELIEVED  THAT  THE  AG¬ 
GREGATE  ADDITIONAL  REVENUE  derived  from  the 
sources  named,  will  be  fully  adequate  to  carry  this  extra  invest¬ 
ment. 

But  even  if  some  other  provision,  as  an  increase  in  the  pub¬ 
lic  service  revenues  should  have  to  be  made,  the  matter  is  of 
such  importance  as  to  fully  warrant  an  extra  exertion. 

50  ' 


The  reduction,  or  keeping  down  of  insurance  rates,  would 
seem  to  justify,  if  necessary,  a  rate,  higher  than  the  ordinance 
for  hydrant  rentals  on  new  extensions. 

THERE  ARE  IMPORTANT  OFFSETS  TO  THIS  IN¬ 
CREASED  INVESTMENT,  which  should  not  be  lost  sight  of. 
If  meters  are  adopted  for  general  and  compulsory  application, 
as  is  recommended  under  the  heading  “Water  Consumption  and 
Meters,”  probably  the  expenditure  of  at  least  $100,000,  immedi¬ 
ately  necessary  for  an  additional  water  supply  if  meters  are  not 
installed,  will  be  postponed  for  fifteen  to  twenty  years. 

Also,  even  if  a  new  feeder  main  is  not  put  in,  all  or  nearly 
all  of  the  additional  29  miles  must  be  provided  in  some  fashion, 
in  the  very  near  future.  If  this  is  done  without  an  adequate 
feeder  system,  such  as  the  one  proposed,  at  least  28  miles  of 
subsidiary  mains  would  be  necessary,  and  they  would  of  neces¬ 
sity  average  of  larger  size  than  the  20  miles  of  subsidiary  mains 
proposed  in  connection  with  the  new  feeders  system.  Hence 
the  saving  would  not  be  very  great,  while  the  loss  which  the 
city  would  sustain  by  an  inefficient  and  unsafe  system  would  be 
enormous. 

NEW  PUMPS  WILL  BE  MUCH  MORE  IMPERATIVE 
if  the  system  is  not  metered  than  if  it  is,  and  to  place  the  pumps 
on  the  same  scale  of  capacity  and  safety  under  each  alternative, 
they  will  have  to  be  at  least  25  per  cent  greater  in  size  if  meters 
are  not  used  than  if  they  are.  The  non-use  of  meters  will  for 
this  reason  tax  the  boiler  capacity  to  a  much  greater  extent 
than  their  use. 

CONSIDERING  THIS  QUESTION  AS  A  WHOLE, 
AND  AT  LARGE,  it  is  not  at  all  likely  that  the  adoption  of 
universal  metering,  and  carrying  out  the  plan  for  an  additional 
and  independent  main,  will  increase  the  burden  of  the  invest¬ 
ment  that  would  otherwise  have  to  be  borne,  more  than  a  trifle. 

If  meters  are  not  introduced  and  the  large  main  not 
laid,  the  following  approximate  expenses  would  stare  the  com¬ 
pany  in  the  face  at  any  rate : 


28  miles  of  mains  at  $7,500 . $210,000 

New  water  supply .  100,000 

15,000,000  gallons  pumps .  50,000 

2,000  services  .  30,000 


Total  . $390,000 

If  they  are  introduced  and  the  meters  are  made  to  carry 
themselves,  the  increase  investment  to  be  provided 
for  would  be . .  420,000 


Difference  of  investment  for  which  revenue  must  be 

provided  . $  30,000 


51 


When  a  city,  and  the  water  plant  that  serves  it,  has  reached 
the  scale  of  development  that  Peoria  has,  there  is  nothing  to  be 
gained  in  makeshifts,  or  in  drifting  with  no  definite  goal  in  view. 

THERE  IS  AN  IMPORTANT  AND  FUNDAMENTAL 
PRINCIPLE  that  water  works  managers  lose  sight  of  in  their 
desire  to  postpone  what  they  may  consider  a  dead,  or  partially 
dead  investment  in  the  extension  of  water  mains  into  new  terri¬ 
tory,  which  is,  that  if  a  territory  has  been  built  up  without  water 
mains,  the  householder  invariably  provides  cisterns,  or  wells 
with  pumps,  to  enable  him  to  live.  If  after  this  has  been  done, 
a  water  main  is  laid  in  front  of  his  house,  he  may  or  may  not 
connect  therewith.  Or  if  he  does  connect,  years  may  pass  be¬ 
fore  he  does  so. 

If,  on  the  other  hand,  the  main  had  been  there  when  the 
house  was  built,  and  the  water  furnished  was  potable  and  filled 
his  needs,  ninety-nine  chances  out  of  one  hundred,  he  would 
have  provided  no  wells  and  cisterns,  but  would  have  become  a 
customer  at  first. 

This  principle  is  verified  by  the  company’s  bill  asking  for 
an  injunction  in  the  rate  case,  where  complaint  is  made  of  the 
slowness  with  which  householders  become  customers,  and  that 
when  they  do,  many  of  them  want  to  use  the  water  works  as 
a  makeshift,  only  paying  for  enough  water  to  fill  their  cisterns 
from  time  to  time.  Had  the  water  mains  been  accessible  from 
the  first,  the  cisterns  might  never  have  existed. 

WATER  CONSUMPTION  AND  METERS. 

The  Peoria  Water  Co.  took  over  the  city  plant  October  31, 
1889,  and  operated  it  until  the  early  part  of  1892,  after  which 
the  supply  came  entirely  from  the  new  works. 

These  were  officially  tested  June  3  and  4,  1892,  and  accepted 
July  25  following. 

During  28  months,  October  31,  1889,  to  February  21,  1892, 
while  the  old  works  were  in  operation,  the  average  daily  supply 
as  shown  by  the  pumping  records,  was  3,330,000  gallons. 

For  the  year  June  30,  1892,  to  June  30,  1893,  the  first  year 
of  operating  the  new  works,  the  average  daily  supply  was 
2,628,000  gallons,  which  for  a  population  of  46,000  gives  a  con¬ 
sumption  of  5 7  gallons  per  capita  per  day. 

For  the  year  June  30,  1909,  to  June  30,  1910,  the  last  year 
of  operation,  the  average  daily  consumption  was  7,435,000  gal¬ 
lons.  With  a  population  of  73,000  as  representing  Peoria  and 
the  adjacent  villages,  supplied  by  the  Peoria  Water  Works  Com¬ 
pany,  the  consumption  was  102  gallons  per  capita  per  day. 

This  increase  of  water  used  per  capita  from  57  gallons,  to 
102  gallons  daily  in  eighteen  years,  is  not  indicative  of  increased 

52 


waste,  or  even  of  increased  consumption,  rated  on  the  actual 
users  of  water. 

The  daily  average  consumption  for  each  service  pipe  in  the 
system,  January  1,  1893,  was  804  gallons,  and  for  January  1, 
1910,  it  was  718  gallons,  which  tends  to  show  that  relatively  to 
the  number  of  actual  users  of  water,  a  reduction  is  taking  place 
in  consumption. 

Appendix  V.  is  a  diagram  giving  a  graphic  representation 
of  water  consumed,  service  pipes,  and  miles  of  street  mains,  with 
reference  to  population.  It  shows  that  though  after  July  1, 
1892,  the  pipe  mileage  has  not  kept  pace  with  population,  the 
number  of  services  have  grown  from  70  per  one  thousand  of 
population,  to  142.  The  same  law  appears  from  an  inspection 
of  Appendix  II. 

It  is  then  a  demonstrated  fact,  that  notwithstanding  the 
average  daily  supply  of  water  has  increased  in  seventeen  years 
from  2,628,000  gallons  to  7,435,000,  and  the  daily  per  capita  con¬ 
sumption  from  57  to  102  gallons,  there  has  been  no  actual  in¬ 
creased  wastage  relatively,  or  increase  in  the  use  of  water  per 
actual  consumer. 

This  does  not  signify,  however,  that  there  is  not  a  large 
unnecessary  wastage  and  use,  which  may  be  greatly  reduced  by 
the  general  use  of  meters. 

The  consumption  at  the  present  time  is  about  as  follows, 


as  shown  by  the  latest  records : 

Gallons. 

Daily  average  for  the  year  ending  June  30,  1910 .  7.435,000 

Daily  average  for  month  of  maximum  consumption 

(June,  1910)  .  9,046,000 

Maximum  consumption  for  single  day  (June  30,  19 10).  10, 688, 000 
The  maximum  consumption  for  a  single  day  to  August 

12,  1910,  was  for  July  9 . 12,458,000 


THE  EFFECT  OF  A  GENERAL  METERING  of  all 
water  services  cannot,  of  course,  be  foretold  exactly,  but  that 
it  would  profoundly  affect  the  consumption  and  waste  of  water 
cannot  be  doubted. 

Meters  have  been  introduced  extensively  in  many  cities  of 
comparatively  large  size,  and  the  results  have  been  beneficial 
to  such  a  degree,  that  the  advisability  of  their  use  in  the  most 
of  water  works  plants  is  no  longer  seriously  questioned. 

It  is  not  to  be  inferred,  however,  that  the  advantage  derived 
from  their  use  is  equal  in  all  plants,  and  that  there  are  not  cases 
where  the  time  has  not  arrived  for  their  general  introduction. 
There  are,  however,  no  cities  where  they  should  not  be  used 
for  certain  classes  of  service. 

In  this  connection  it  should  be  observed  that  there  are  other 
causes  operating  in  many  cities  to  keep  down  the  water  con- 

53 


sumption,  the  results  of  Avhich  are  often  erroneously  attrib¬ 
uted  to  meters.  The  very  low  consumption  in  many  European 
cities  and  in  some  American  cities  is  sometimes  largely  due  to 
a  great  number  of  consumers  being  supplied  through  a  single 
service  pipe,  and  without  discrimination  in  drawing  inferences 
from  water  works  data,  meters  may  be  given  the  credit  for  ajow 
rate  of  consumption  for  which  they  are  only  partially  the  cause. 

Though  meters  have  come  into  general  use  in  water  works 
of  a  certain  class,  they  are  not  supplied  universally  in  the  largest 
cities,  such  as  New  York,  Chicago,  Philadelphia,  St.  Louis  and 
Boston. 

In  some  intermediate  sized  cities,  such  as  Cleveland  and 
Milwaukee,  they  have  been  generally  installed. 

The  best  evidence  of  their  effect  in  these  and  other  smaller 
cities,  is  a  comparison  of  water  consumption  before  and  after 
they  have  been  generally  installed. 

Years 


MILWAUKEE.  1892.  1909. 

Population . 167,700  365,000 

Total  number  of  service  pipes .  12,212  61,589 

Total  number  of  meters .  871  51,120 

Per  cent  of  services  metered .  7.1  83.0 

Number  of  service  pipes  per  1,000  of  popula¬ 
tion  .  73  169 

Daily  average  consumption  of  water,  thou¬ 
sands  of  gallons .  17,900  36,100 

Daily  average  consumption  of  water  per  capita 

gallons  .  106  99 

Daily  average  measured  through  meters  per 

capita  gallons .  59 

Daily  average  consumption  of  water  per  ser¬ 
vice  gallons .  1,464  586 


In  seeking  for  the  effect  of  meters  in  Milwaukee,  it  will  be 
observed  that  though  only  7.1  per  cent  of  the  services  were 
metered  in  1892  as  against  83  per  cent  in  1909,  there  has  been 
but  a  small  decrease  in  the  water  consumed  per  capita,  while 
under  nominal  conditions  with  meters  there  should  have  been 
a  reduction  of  nearly  one-half. 

This  is  accounted  for  by  the  fact  that  in  1892  there  were' 
only  73  services  for  1,000  of  population,  and  a  consumption  of 
464  gallons  of  water  per  service,  while  in  1909  there  were  169 
services  per  1,000  of  population,  and  a  consumption  of  only  586 
gallons  of  water  per  service.  This  indicates  that  if  there  had 
been  as  many  services  for  1,000  of  population  in  1892  as  in  1909, 
the  amount  of  water  per  capita  in  1892  would  have  been  at  least 
twice  what  it  was,  or  to  express  it  in  another  way,  if  meters  had 


54 


not  been  introduced,  it  is  probable  that  the  consumption  of 
water  in  1909,  instead  of  being  but  99  per  capita,  would  have 
been  in  the  neighborhood  of  200  gallons  per  capita. 


ears 

CLEVELAND.  1901.  1908. 

Population  . 411,200  519,000 

Total  number  of  service  pipes .  55,130  74,490 

Total  number  of  meters .  3,540  69,733 

Per  cent  of  services  metered .  6.4  93.6 

Number  of  services  per  1,000  of  population.  . .  134  143 

Daily  average  consumption  of  water,  thou¬ 
sands  of  gallons .  69,600  52,000 

Daily  average  consumption  of  water  per  capita 

gallons  .  169  100 

Daily  average  measured  by  meters,  per  capita 

gallons  .  77 

Daily  average  consumption  of  water  per  ser¬ 
vice  gallons .  1,263  698 


As  will  be  observed  in  the  case  of  Cleveland,  the  effect  of 
meters  is  clearly  marked.  A  reduction  in  consumption  of  69 
gallons  per  capita  or  nearly  41  per  cent  having  occurred  in  seven 
years,  notwithstanding  the  fact  that  the  number  of  services  per 
1,000  of  population  has  increased  but  slightly. 

The  apparent  difference  between  Cleveland  and  Milwaukee 
in  this  regard  is  obviously  due  to  the  fact  that  the  Cleveland1 
plant  was  48  years  old  in  1901,  and  hence  had  developed  its  busi¬ 
ness  nearly  in  proportion  to  the  size  of  the  city  at  that  time, 
while  the  Milwaukee  plant  was  but  18  years  old  in  1892  and  had 
not  developed  its  business  in  such  proportion. 

In  the  latter  case  the  development  of  business  in  proportion 
to  population  was  in  progress  while  meters  were  being  intro¬ 
duced,  while  in  the  former  this  was  true  in  only  a  minor  degree. 


Y  ears 

COLUMBUS,  OHIO.  1900.  1907. 

Population  . 125,560  164,700 

Total  number  of  service  pipes .  14,556  24,975 

Total  number  of  meters . 4,656  19,016 

Per  cent  of  services  metered .  10.2  76.5 

Number  of  services  per  1,000  population .  116  134 

Daily  average  consumption  of  water,  thou¬ 
sands  of  gallons  .  24,400  16,300 

Daily  average  consumption  of  water  per  capita 

gallons  .  194  99 

Daily  average  measured  by  meters  per  capita 

gallons  . 

Daily  average  consumption  of  water  per  ser¬ 
vice  gallons .  1,676  652 


55 


Columbus  shows  a  reduction  in  seven  years  in  the  per  capita 
consumption  of  95  gallons,  or  over  49.0  per  cent,  notwithstand¬ 
ing  the  fact  that  there  was  considerable  development  of  busi¬ 
ness  relative  to  population  occurring  while  meters  were  being- 


introduced. 

y  £3,rs 

MINNEAPOLIS.  1904.  1908. 

Population  . 250,120  297,400 

Total  number  of  service  pipes .  26,444  33,500 

Total  number  of  meters .  11,044  25,493 

Per  cent  of  services  metered .  41.7  76.1 

Number  of  services  per  1,000  of  population..  106  113 

Daily  average  consumption  of  water,  thou¬ 
sands  of  gallons  .  19,400  17,800 

Daily  average  consumption  of  water  per  capita 

gallons  .  73  60 

Daily  average  measured  by  meters  per  capita 

gallons  .  21  32 

Daily  average  consumption  of  water  per  ser¬ 
vice  gallons .  694  521 


For  an  American  city,  Minneapolis  has  a  small  number  of 
service  pipes  per  1,000  of  population  in  both  years  compared, 
which  partly  accounts  for  the  comparatively  low  water  consump¬ 


tion  per  capita.  Meters  must  be  given  credit  for  a  considerable 
part  of  it,  however. 

Y  g^rs 

ST.  PAUL.  1896.  1909. 

Population  . 151,100  209,560 

Total  number  of  service  pipes  . 14,792  28,062 

Total  number  of  meters .  1,546  13,628 

Per  cent  of  services  metered .  10.5  48.06 

Number  of  services  per  1,000  of  population.  .  97  134 

Daily  average  consumption  of  water,  thou¬ 
sands  of  gallons .  8,600  11,700 

Daily  average  consumption  of  water  per  capita 

gallons  .  57  56 

Daily  average  measured  by  meters  per  capita 

gallons  .  10  19 

Daily  average  consumption  of  water  per  ser¬ 
vice  gallons .  583  417 


The  effect  of  meters  in  keeping  down  water  consumption 
in  St.  Paul  is  shown  by  the  fact  that  the  water  used  per  capita 
remained  practically  stationary  for  three  years,  during  which 
time  the  number  of  services  per  1,000  of  population  was  in¬ 
creased  more  than  one-third,  the  metered  service  in  1909  being 
less  than  50  per  cent. 


56 


Y  Gcirs 

LOWELL,  MASS.  1898.  1909. 

Population  .  91,500  95,100 

Total  number  of  service  pipes .  10,396  12,307 

Total  number  of  meters .  4,865  9,465 

Per  cent  of  services  metered .  46.9  76.9 

Number  of  services  per  1,000  of  population. . .  113  129 

Daily  average  consumption  of  water,  thou¬ 
sands  of  gallons .  6,700  5,200 

Daily  average  consumption  of  water  per  capita 

gallons  .  73  55 

Daily  average  measured  by  meters  per  capita 

gallons  .  20  28 

Daily  average  consumption  of  water  per  ser¬ 
vice  gallons .  644  426 


The  effect  of  meters  is  very  marked  in  Lowell,  as  a  material 
reduction  in  the  water  consumed  per  capita  has  taken  place, 
while  a  material  increase  of  services  per  1,000  of  population  was 


occurring. 

Y  ears 

FALL  RIVER,  MASS.  1880.  1909. 

Population  .  48,900  106,400 

Total  number  of  service  pipes . 2,685  8,216 

Total  number  of  meters .  1,583  8,197 

Per  cent  of  services  metered .  59  98.5 

Number  of  services  per  1,000  of  population..  55  78 

Daily  average  consumption  of  water,  thou¬ 
sands  of  gallons .  1,400  5,300 

Daily  average  consumption  of  water  per  capita 

gallons  .  28  50 

Daily  average  measured  by  meters  per  capita 

gallons  .  24.5 

Daily  average  consumption  of  water  per  ser¬ 
vice  gallons .  508  642 


Fall  River  is  an  example  of  a  city  that  used  meters  in  con¬ 
siderable  numbers  from  the  beginning.  In  1874,  the  first  year 
of  operation,  there  were  7.5  per  cent  of  the  services  metered, 
and  in  1876,  the  third  year  of  operation,  there  were  35  per  cent 
of  the  services  metered. 

In  1880  the  business  of  the  plant  was  in  an  undeveloped 
state,  and  there  were  very  few  services  to  each  1,000  population, 
hence  the  low  consumption  per  capita. 

By  1909  the  number  of  services  per  1,000  of  population  had 
increased  42  per  cent,  but  still  remains  at  the  extremely  low 
number  of  78,  which  represents  about  12.9  of  population  to  the 
service. 


57 


The  low  consumption  per  capita  which  has  always  obtained 
in  Fall  River,  considering  that  it  is  a  large  manufacturing  city, 
is  not  altogether  due  to  meters.  A  considerable  part  of  it  must 
be  ascribed  to  the  large  number  of  consumers  for  each  service 


pipe. 

Years 

MADISON,  WIS.  1890.  1908. 

Population  .  13,246  27,610 

Total  number  of  service  pipes .  1,355  4,601 

Total  number  of  meters .  441  4,538 

Per  cent  of  services  metered .  32.5  98.6 

Number  of  services  per  1,000  of  population.  .  .  102  166 

Daily  average  consumption  of  water,  thou¬ 
sands  of  gallons . 520  1,700 

Daily  average  consumption  of  water  per  capita 

gallons  .  38  61 

Daily  average  measured  by  meters  per  capita 

gallons  .  26 

Daily  average  consumption  of  water  per  ser¬ 
vice  gallons .  384  368 


Madison  shows  a  low  consumption  of  water  per  capita,  par¬ 
ticularly  in  1890,  considering  there  were  102  service  pipes  per 
1,000  of  population. 

And  considering  the  character  of  the  city,  with  thousands  of 
inhabitants  attending  the  university  that  do  not  appear  in  the 
census  returns,  the  consumption  per  capita  in  1908  shows  the 
effect  of  meters  in  keeping  it  down. 

This  case  furnishes  a  marked  example  of  the  effect  of  an 
increase  of  services  per  1,000  of  population  to  carry  with  it  in¬ 
creased  rate  of  consumption  per  capita. 

Here  the  services  per  1,000  of  population  grew  in  eighteen 
years  nearly  63  per  cent,  in  spite  of  which  and  in  spite  of  a  large 
percentage  increase  of  meters  relative  to  service  pipes,  the  water 
consumption  per  capita  was  60  per  cent  greater  in  1908  than  in 
1890. 

The  foregoing  eight  cities  comprise  all  at  present  available 
that  permit  of  a  comparison  of  the  progressive  effect  of  meters 
on  the  consumption  of  water.  Other  data,  however,  confirms 
and  reinforces  the  results  shown. 

A  comparison  of  Cleveland  and  Milwaukee  with  other  lake 
cities,  as  to  the  water  used  per  capita,  and  the  per  cent  of  meters 
in  use,  is  very  significant. 


58 


Per  Cent  Daily  Av, 
of  Services  Gallons 


City. 

Year. 

Population. 

Metered.  Per 

Cap 

Cleveland  . 

. 1908 

519,000 

93.6 

100 

Milwaukee  .... 

. 1909 

365,000 

83.0 

99 

Chicago  . 

. 1908 

2,050,000 

3.9 

228 

Detroit  . 

. 1908 

430,000 

9.0 

180 

Buffalo  . 

. 1909 

467,000 

4.0 

323 

Erie  . 

. 1908 

63,600 

2.3 

200 

Saginaw  . 

. 1908 

50,000 

4.5 

177 

When  it  is  considered  that  Cleveland  and  Milwaukee  are 
large  manufacturing  cities,  certainly  as  much  so  in  proportion  to 
population  as  Detroit  and  Buffalo,  it  is  fair  to  conclude  that  their 
consumption  of  water  would  have  been  twice  what  it  is,  if  meters 
had  only  been  used  for  say,  4  per  cent  of  the  services. 


APPLICATION  OF  METERS  TO  PEORIA  WATER 

WORKS. 

As  has  been  seen,  the  average  daily  consumption  of  water 
at  Peoria  was  7,435,000  gallons  per  day  for  the  year  ending  June 
30,  1910,  or  102  gallons  per  capita  per  day,  allowing  73,000  as 
the  population  of  the  city  and  adjacent  villages  supplied  with 
water. 


The  services  January  1,  1910,  were . 10,239 

Meters  in  use .  371 

Per  cent  of  services  metered .  3.6 

Number  of  services  per  1,000  of  population .  142 


Experience  shows  that  cities  of  the  class  of  Peoria,  if  sup¬ 
plied  with  a  full  quota  of  water  mains,  with  its  business  well  de¬ 
veloped,  would  have  on  an  average  probably  170  or  more  services 
per  1,000  population,  and  with  the  present  relative  amount  of 
meters  the  consumption  would  have  been  greater  than  102  gal¬ 
lons  per  capita. 

The  question  is,  what  consumption  per  capita  would  Peoria 
have  had  if  it  had  been  generally  metered?  And  what  is  it 
likely  to  have  in  the  future  if  meters  should  be  installed? 

The  Des  Moines,  Iowa,  water  plant,  owned  by  a  public  ser¬ 
vice  company,  has  139  miles  of  street  mains,  and  on  January  1, 
1910,  had  13,906  service  pipes  and  13,008  meters,  giving  93.5  per 
cent  of  metered  services.  The  consumption  of  water  was  52  gal¬ 
lons  per  capita  for  the  year  1909,  with  an  estimated  population 
of  86,415.  On  a  corrected  estimate  based  on  the  1910  census,  it 
was  54  gallons  per  capita. 


59 


The  water  is  furnished  to  the  city  with  about  the  same 
pressure  as  at  Peoria. 

In  the  report  on  the  New  York  supply  made  to  Bird  S.  Coler, 
Comptroller,  by  John  R.  Freeman,  in  March,  1900,  such  data 
with  relation  to  the  effe'ct  of  the  use  of  meters  on  the  consump¬ 
tion  of  water  as  was  then  available,  was  collected  and  analyzed. 
From  this  data  a  curve  was  constructed  which  was  intended  to 
represent  the  mean  consumption  of  water  per  capita  wdth  vary¬ 
ing  ratios  existing  between  the  number  of  meters  installed  and 
the  number  of  service  pipes.  The  second  column  in  the  follow¬ 
ing  table  represents  the  gallons  per  capita  per  day  taken  from 
Freeman’s  curve,  while  the  third  is  intended  to  be  applicable  to 
Peoria,  after  mains  have  been  extended : 


jnt  of  Metered 

Gallons  per 

Estimated  Gallons 
per  Capita  per 

Services. 

Capita  Daily. 

Day,  Peoria. 

0 

250 

155 

2.5 

180 

135 

5.0 

150 

120 

7.5 

130 

112 

10.0 

115 

105 

15.0 

100 

98 

20.0 

90 

94 

25.0 

82 

90 

30.0 

78 

86 

40.0 

70 

81 

50.0 

65 

78 

60.0 

62 

74 

75.0 

58 

70 

90.0 

56 

67 

100.0 

55 

65 

The  Freeman  curve  can  only  be  expected  to  represent  the 
law  of  variation  in  a  general  wray,  and  is  very  little  aid  in  de¬ 
termining  the  water  consumption  in  any  particular  case. 

As  has  been  seen,  the  meters  in  use  in  Peoria  are  3.6  per 
cent  of  the  total  number  of  services.  This  would  represent  a 
consumption  of  about  160  gallons  per  capita  by  the  Freeman 
curve,  but,  as  a  matter  of  fact,  the  consumption  is  only  102  gal¬ 
lons  per  capita. 

If  the  water  service  w^as  developed  to  the  amount  of  170 
services  or  more  to  1,000  of  population,  the  present  consumption, 
instead  of  being  102  gallons,  might  have  been  at  least  125  gal¬ 
lons  per  capita. 

Making  all  the  comparisons  possible  with  the  foregoing  data, 
and  particularly  comparing  with  Des  Moines,  where  the  con¬ 
sumption  was  54  gallons  per  capita  in  1909,  on  a  population  cor- 

60 


rected  for  the  1910  census,  it  is  believed  that  if  the  Peoria  works 
were  now  metered  to  the  extent  of  95  per  cent  of  the  services  that 
the  consumption  would  not  have  exceeded  60  gallons  per  capita 
per  day,  and  that  after  the  mileage  of  street  mains  is  brought 
up  to  132  and  the  business  well  developed,  that  the  consump¬ 
tion  is  not  likely  to  exceed  65  gallons  per  capita  per  day  under  a 
condition  of  100  per  cent  of  services  metered. 

In  the  third  column  of  the  foregoing  table,  giving  the  rela¬ 
tion  between  the  per  cent  of  services  metered  and  the  consump¬ 
tion  of  water  per  capita  per  day,  is  an  estimate  of  this  relation 
for  the  Peoria  Water  Works  based  upon  the  meter  data  col¬ 
lected,  which  is  intended  to  apply  to  Peoria  after  its  business 
shall  have  been  developed  commensurately  with  a  distribution 
system  of  not  less  that  132  miles  of  street  mains,  and  with  ap¬ 
proximately  170  services  per  1,000  of  population. 

On  the  basis  of  the  relation  shown,  the  following  table  gives 
the  population  it  is  possible  to  serve,  and  the  year  when  an  aver¬ 
age  available  supply  of  6,500,000  gallons  of  water  per  day  will 
be  exhausted : 


Per  cent  of  Services 
Metered. 

25 

50 

75 

100 


Year  When 


Population  Which 

Present  Supply 

Can  be  Served. 

Will  be  Exhausted 

72,200 

1911 

83,300 

1917 

93,000 

1924 

100,000 

1930 

The  limit  of  the  present  daily  supply  is  fixed  at  6,500,000 
gallons  per  day  to  guard  against  a  year  of  excessive  drought. 

The  actual  average  daily  consumption  for  the  year  ending 
June  30,  1910,  was  7,435,000  gallons,  and  for  the  year  ending 
December  31,  1910,  it  is  likely  to  be  over  7,500,000  gallons.  The 
maximum  daily  consumption  for  the  year  being  probably  that 
of  July  9,  when  it  reached  12,458,000  gallons. 

A  new  well  will  be  put  into  operation  soon,  which  is  likely 
to  increase  the  supply  for  such  a  year  as  the  present  one,  in  ex¬ 
cess  of  500,000  gallons,  bringing  the  total  daily  average  supply 
to  more  than  8,000,000  gallons. 

In  using  6,500,000  average  daily  supply  for  a  year  of  drought 
a  20  per  cent  reduction  is  made  over  such  a  year  as  the  present 
one. 

For  these  reasons  and  because  the  water  consumption  is  in¬ 
creasing  rapidly  at  present,  being  20  per  cent  greater  per  capita 
for  the  year  ending  June  30,  1910,  than  it  was  one  and  one-half 
years  earlier,  there  seems  to  be  no  question  that  meters  should 
be  applied  promptly  and  universally  in  Peoria. 

The  special  conditions  affecting  the  water  supply  seem  to 
render  this  policy  imperative. 


61 


COST  OF  INSTALLING  AND  MAINTAINING  METERS. 

In  1904  Edward  W.  Bemis,  Superintendent  of  the  Cleveland 
Water  Works,  in  a  paper  before  the  American  Water  Works 
Association,  gave  the  experience  in  Cleveland  in  setting  and 
maintaining  meters  as  follows  : 

Total  number  ^-inch  meters  set  to  date,  13,407. 


Average  cost  of  meters  and  connections . $  6.50 

Average  cost  of  setting,  including  vaults  and  basins .  6.87 


Total  in  place . $13.37 

Average  cost  of  maintenance : 

Reading  and  clerical  work . $  1.10 

Repairs  . 10 

Interest  and  depreciation,  8  per  cent  on  $13.37 .  1.07 


Total  maintenance  . . . $  2.27 


Data  contained  in  the  report  of  the  Cleveland  Water  De¬ 
partment  for  1908,  shows  that  the  average  cost  of  setting  64,148 
^-inch  meters  to  that  date,  and  the  cost  of  maintaining  them  for 


the  year  1908  was  as  follows : 

Average  cost  of  meters  and  connections . .  .  .$  6.49 

Average  cost  of  setting,  including  vaults  and  basins .  8  75 

Total  in  place  . $15.24 

Average  cost  of  maintenance,  1908: 

Reading  . $  .57 

Repairs  . 11 

Interest  and  depreciation,  8  per  cent  on  $15.24 .  1.22 

Total  maintenance  . $  1.90 


No  clerical  work  other  than  the  mere  reading  of  the  meters 
is  included  in  the  maintenance  account  for  1908. 

Considering  this  data  as  a  whole,  it  is  fair  to  take  the  cost 
of  maintaining  ^-inch  meters  in  Cleveland  at  $2.00  per  meter  per 
annum. 

In  the  report  on  the  New  York  water  supply  hereinbefore 
referred  to,  John  R.  Freeman  estimates  the  cost  of  furnishing 
and  setting  meters  for  that  city,  with  a  force  of  men  working 


systematically,  for  domestic  sizes  ^  and  ^-inch,  at . $12.50 

Average  cost  all  sizes . 15.00 


Cost  of  maintenance  all  sizes,  including  interest,  $2.50  per 
meter  per  annum. 


62 


This  estimate  is  not  very  different  from  the  Cleveland  ex¬ 
perience. 

In  Cleveland  they  use  many  large  brick  basins  outside  of  the 
houses,  which  makes  the  cost  of  setting  much  higher  than  it; 
would  otherwise  be. 

Peoria  would  doubtless  get  along  with  less  expensive 
housing  for  the  meters,  so  that  the  cost  of  installation  would 
probably  be  less  than  in  Cleveland.  On  the  other  hand,  the 
reading  and  clerical  work,  and  the  repairs,  are  likely  to  be  some¬ 
what  higher  in  Peoria  than  for  Cleveland. 

A  safe  price  for  Peoria  is  believed  to  be  $12.50  for  setting 
all  sized,  and  $2.00  per  annum  to  cover  all  expense  of  reading, 
repairs,  renewals  and  interest. 


REASONABLE  RATES. 

Under  the  head  of  returns,  the  conclusion  was  reached  that 
7  per  cent  per  annum  on  the  proper  investment  value  of  the  plant 
would  be  a  minimum  to  allow  for  interest  and  profits,  or  more 
properly,  interest  and  compensation  for  use  of  capital  and  ser¬ 
vices  in  caring  for  the  capital,  and  the  risks  incurred  in  the 
conduct  of  the  business. 

It  has  also  been  determined  that  the  fair  value  of  the  prop¬ 
erty  of  the  Peoria  Water  Works  Company  as  of  January  1,  1909, 
was  $2,150,000. 

This  brings  us  to  the  concrete  problem  of  reasonable  rates, 
as  specifically  applied  to  the  Peoria  Water  Works.  There  are 
four  phases  to  this  question ; 

1.  As  to  whether  the  earnings  of  the  Company  as  a  whole 
yield  an  excessive  profit,  considered  with  reference  to  the  invest¬ 
ment  and  the  operating  charges,  and  as  compared  with  the  cost 
incurred  my  municipalities  which  furnish  their  own  supply. 

2.  As  to  matters  of  fair  rate  adjustment  between  private 
consumers,  and  the  proper  proportion  of  the  whole  revenue 
which  should  be  derived  from  private  sources,  compared  with 
that  paid  by  the  municipality  for  public  service. 

3.  As  to  questions  of  reasonableness  to  the  consumer, 
viewed  abstractly,  and  as  compared  with  the  cost  of  individual 
service  in  other  cities,  but  without  regard  to  the  amount  of  the 
investment  and  cost  of  operation. 

4.  As  to  reasonableness  of  the  Peoria  rate  ordinance,  as 
affecting  the  income  of  the  Company  if  applied  literally. 

The  first  phase  of  the  question  is  best  covered  by  a  com¬ 
parison  between  the  revenue  of  the  Company  and  the  operating 
expenses  plus  the  proper  return,  as  follows : 


63 


Revenue  for  Year  Ending  December  31,  1908. 


Revenue  from  city  . $  47,470 

Revenue  from  private  sources .  177,538  $225,008 


Expenses  and  Fixed  Charges. 


Operating  expenses,  1908,  exclusive  of  taxes 
and  depreciation,  and  reduced  $8,016  be¬ 
cause  of  unusual  contingent  expenses . $  75,600 

Depreciation  being  that  annual  sum  which 
placed  at  compound  interest  at  4  per  cent 

equals  $1,950,000  in  46  years  .  15,000 

Taxes  .  15,000 

Returns,  being  7  per  cent  for  interest,  ad- 


Defieiency  . $  31,092 


This  showing  is  on  the  plant  as  it  existed  on  Janu¬ 
ary  1,  1909.  Since  that  time  considerable  money  has  been  ex¬ 
pended  in  extensions  of  water  mains  and  improvements  at  the 
pumping  station.  Just  how  much  is  not  known. 

As  appears  under  the  head  of  “needed  improvements,”  there 
should  be  expended  $570,000,  more  or  less,  upon  the  water  plant, 
within  the  next  three  years. 

There  are  other  tests  that  can  be  profitably  applied  to  de¬ 
termine  whether  the  earnings  of  the  company  as  a  whole  are 
excessive,  and  as  to  whether  the  city  is  being  better  or  worse 
served  with  a  public  service  corporation  than  other  cities  who 
operate  their  own  plants. 

Appendix  I  is  a  tabulation  of  the  operating  and  investment 
data  of  thirty-nine  water  works  plants  owned  and  operated  by 
municipalities  that  are  supplied  by  pumps,  in  cities  that  range 
from  approximately  25,000  population  to  240,000  population. 
The  average  population  being  85,000  per  city,  as  compared  with 
73,000  population  served  by  the  Peoria  water  works. 

The  following  table  contains  the  consolidated  mean  operat¬ 
ing  data  of  these  thirty-nine  water  works  plants  compared  with 
the  Peoria  water  works  plant. 


64 


Means  and  Means  and 
Averages  Averages 
of  the  Peo.  of  39  Mun- 
Water  Wks  icipal 
Plant  Dec.  Water  Wks 
31,  1908  Plants 


Age  of  plant  in  years  .  17  33 

Population  .  70,120  84,995 

Water  pumped,  millions  of  gallons  per  annum  2,171  2,924 

Gallons,  per  capita,  per  day .  84  94 

Head  on  pumps  in  feet .  315  212 

Miles  of  street  mains .  99.3  133  6 

Number  of  services  . .  9,040  12,760 

Number  of  meters  .  288  6,832 

Total  investment . 2,150,000  2,435 ,582 

Investment  per  mile  of  mains .  21,651  18,226 

Investment  per  capita  .  31  28 

Private  revenue,  annual .  177,538  205,073 

Private  revenue  per  service .  20  16 

Private  revenue  per  capita .  2.53  2.41 

Operating  expenses,  without  taxes .  75,600  79,172 

Operating  expenses,  per  cent  of  revenue .  42  38 

Cost  to  city  of  public  service,  $47,500  hydrant 

rental  less  $15,570  taxes,  equal .  31,930 

Cost  to  cities  of  public  service,  6  per  cent  on 
$2,435,582  is  $146,135,  plus  $79,172  operat¬ 
ing  expenses,  less  private  income  $205,073, 

equal  .  20,234 

Cost  to  city  for  public  and  private  service.  .  .  209,468  225,207 

Cost  to  city  for  public  and  private  service 
per  capita  .  2.99  2.65 


In  stating  the  cost  of  public  service  to  the  city  of  Peoria 
the  taxes  paid  by  the  Water  Company  are  deducted  from 
hydrant  rental,  on  the  theory  that  this  is  necessary  to  compare 
with  municipal  plants,  upon  which  no  taxes  are  paid. 

To  obtain  the  cost  of  public  service  rendered  by  the  munic¬ 
ipal  plants,  6  per  cent  has  been  allowed  on  the  investment,  to 
cover  interest,  depreciation  and  renewals,  as  also  any  expenses 
which  are  incurred  by  the  cities  in  connection  with  the  water 
works,  that  does  not  appear  in  the  operating  expenses. 

When  it  is  considered  that  the  Peoria  water  plant  has  lagged 
behind  in  the  amount  of  pipe  mileage,  that  it  pumps  the  water 
twice,  and  to  a  total  height  averaging  50  per  cent  greater  than 
the  plants  with  which  it  is  compared,  and  that  in  comparing  the 
cost  of  the  service  for  the  thirty-nine  plants  only  6  per  cent,  in¬ 
cluding  depreciation,  interest  and  contingencies  have  been 
charged,  the  comparison  is  favorable  to  the  Peoria  plant.  With 
municipal  plants  the  consumer  almost  invariably  pays  for  ser¬ 
vices,  and  generally  meters.  If  these  outlays  in  construction 

65 


were  added  it  would  bring  the  investment  for  the  municipal 
plants  to  over  $32  per  capita. 

Such  detail  comparisons  of  individual  plants  operating- 
under  varying  conditions  of  water  supply,  prices  of  fuel  and 
material,  and  having  different  rate  schedules,  may  be  often  mis¬ 
leading  and  seldom  conclusive.  But  they  are  always  interesting 
and  instructive,  and  if  the  investigation  has  been  given  sufficient 
scope  and  covers  a  sufficiently  wide  field,  conclusions  of  great 
value  can  be  drawn. 

They  are  desirable  as  tending  to  discover  some  standard  by 
which  the  fairness  of  the  income  of  a  plant  can  be  approximately 
determined  in  advance,  and  serve  as  a  steadying  and  standardiz¬ 
ing  element  in  matters  of  this  kind. 

THE  SECOND  PHASE  OF  THE  QUESTION  of  fair  rates 
is  important  only  as  it  may  affect  some  new  schedule  which  it 
may  be  proposed  to  adopt,  and  in  aiding  in  the  proper  adjustment 
of  revenue  from  private  sources,  and  from  the  city.  Speaking 
generally,  it  is  believed  that  the  proportion  paid  by  the  city  at 
the  present  time  is  as  nearly  equitable  as  any  that  can  be  desig¬ 
nated. 

As  between  private  consumers  there  are  two  cases  of  dis¬ 
crimination  which  appear  plainly  on  the  face  of  the  analysis 
made  by  the  Pratt  Company. 

One  is  the  free  list. 

It  appears  that  in  accordance  with  the  provisions  of  the 
franchise,  free  water  is  furnished  to  a  large  number  of  public  and 
private  institutions.  In  a  new  schedule  of  rates  this  free  list 
should  be  abolished,  and  the  service  put  on  a  reasonably  paying 
basis. 

Appendix  VI  is  a  list  of  institutions,  public  and  private,  that 
pay  no  revenue.  The  Company’s  estimate  of  the  amount  and 
value  of  the  water  consumed  per  annum,  at  present  meter  rates, 
is  given  as  $14,000  a  year. 

On  a  properly  adjusted  scale  of  rates,  there  is  little  doubt 
but  what  this  free  supply  would  amount  to  considerably  more 
than  that  sum.  While  such  a  free  list  prevails,  the  lowest  rates 
cannot  be  looked  for  by  private  consumers. 

If  one  set  of  consumers  get  their  water  free,  another  set 
must  eventually  bear  the  expense,  or  it  must  be  done  by  the  city 
in  its  official  capacity. 

Another  apparent  discrimination  is  in  the  case  of  198  resi¬ 
dences  furnished  through  meters.  By  the  showing  of  the  auditor 
the  income  from  these  residences  that  are  metered,  if  put  on  the 
flat  fixture  rate  basis,  would  be  $6,360,  while  as  a  matter  of  fact, 
they  are  only  paying  about  $2,970,  the  differences  being  the 
measure  of  the  advantage  which  these  few  resident  owners  de¬ 
rive  which  is  not  participated  in  by  the  householders  generally. 

66 


The  data  is  not  at  hand  to  show  whether  other  cases  of  un¬ 
fairness  between  private  owners  exist  or  not. 

The  income  of  $33,642  derived  from  173  metered  business 
establishments  was  not  analyzed  by  the  auditor,  so  that  ques¬ 
tions  of  discrimination  in  this  list  cannot  be  raised,  if  they  exist. 

During  the  year  1908  the  water  sold  through  meters  in  the 
business  establishments  then  having  meters  was  425,101,845  gal¬ 
lons,  or  an  average  of  1,164,000  gallons  per  day.  The  total  met¬ 
ered  water  for  that  year,  including  191  residences,  was  439,- 
678,000  gallons,  an  average  of  1,204,600  gallons  per  day. 

It  is  not  important  that  questions  of  unjust  and  unequal 
rates  should  be  extensively  gone  into,  if  the  purpose  of  this  in¬ 
vestigation  bears  fruit  in  a  new  schedule  and  new  regulations. 

THE  THIRD  PHASE  OF  THE  QUESTION  of  reasonable 
rates  involves  an  inquiry  into  the  rates  and  amounts  paid  by  in¬ 
dividual  consumers. 

The  audit  of  the  rating  cards  made  by  Edward  A.  Pratt  & 
Co.,  show  that  the  Company’s  domestic  service  consists  of  sup¬ 
plying  water  to  8,394  residences,  which  are  classified  as  follows : 

748  residences  paying  an  average  of  $4.00  per  annum. 

715  residences  paying  an  average  of  $5.00  per  annum. 

544  residences  paying  an  average  of  $6.00  per  annum. 

1,110  residences  paying  from  $6.01  to  $10.00  per  annum. 

1,947  residences  paying  from  $10.01  to  $15.00  per  annum. 

1,219  residences  paying  from  $15.01  to  $20.00  per  annum. 

1,913  residences  paying  over  $20.00  per  annum. 

198  residences  with  meters  paying  an  average  of  $15.00 
per  annum. 

Same  198  residences  at  fixture  rates  would  pay  an 

average  of  $32.00  per  annum. 

8,394  residences  all  at  flat  fixture  rates  would  pay  an  aver¬ 
age  of  $14.69,  or  a  total  of  $123,307. 

The  average  number  of  rooms  charged  for  in  the  8,394  resi¬ 
dences  is  6.42. 

In  a  paper  presented  to  the  American  Water  Works  Associa¬ 
tion,  1908  meeting,  on  water  rates  charges  in  375  cities,  D.  R. 
Gwinn  gives  the  leading  detail  domestic  fixture  rates  for  162 
privately  owned  water  works  plants,  and  213  publicly  owner 
water  works  plants. 

The  rates  given  cover  baths,  water  closets,  wash  basins, 
sprinklers,  and  the  basic  charge  for  a  6-room  house,  5  persons, 
or  first  faucet.  Also  the  maximum  and  minimum  meter  rates. 

Accompanying  these  tables  is  a  summary  of  the  averages  for 
each  group.  These  averages  omitting  meter  rates  are  given  in  the 
following  table  with  the  corresponding  Peoria  rates. 

67 


Summary  of  Average  Fixture  Water  Rates  for  375  City  Plants, 

Compared  With  Peoria  Rates. 


162 

213 

Privately 

Publiclv 

✓ 

Peoria 

Owned 

Owned 

Plant. 

Plants. 

Plants. 

Domestic  use  in  6-room  house,  or  5 

persons,  or  first  faucet . 

$  6.00 

$  6.83 

$  6.04 

Bath  additional . 

3.00 

3.88 

2.99 

Water  closet  additional . 

3.00 

3.69 

3.12 

Wash  basin  additional . 

1.50 

1.94 

1.55 

Sprinkler  for  lot  50x140  feet,  not  in- 

eluding  street  and  sidewalk 
front  . 

in 

6.17 

4.37 

Sprinkler  for  lot  50-140  feet,  includ- 

• 

ing  street  and  sidewalk  in  front.  . 

6.00 

$19.50 

$22.51 

$18.07 

Average  population  (1900)  . 

56,100 

25,437 

85,382 

When  it  is  considered  that  the  larger 

the  city, 

everything 

else  being  equal,  the  less  the  rate  should  be,  and  the 

less  it  gen- 

erally  is,  the  rates  for  the  162  privately  owned  plants  do  not? 
average  out  of  proportion  to  the  213  publicly  owned  plants.  The 
average  population  of  the  latter  group  being  more  than  three 
times  the  population  of  the  first  group. 

Giving  consideration  to  the  same  factors,  the  Peoria  rates 
are  seen  to  be  about  the  same  as  for  the  municipal  plants  and 
less  than  for  the  private  plants. 

The  group  of  cities  having  municipal  plants  given  in  the 
.  paper  referred  to,  contains  nearly  all  the  cities  found  in  Ap¬ 
pendix  1.  And  since  these  cities  have  been  used  for  a  compar¬ 
ison  in  a  broader  way,  it  is  instructive  to  compare  them  with 
Peoria  inv  the  matter  of  rates  in  the  same  manner  as  the  fore¬ 
going  375  cities.  The  fixture  rates  for  only  31  of  the  39  cities 
referred  to  are  available,  so  the  following  table  contains  details 
and  averages  of  this  number  only. 

A  summary  of  averages  is  given  at  the  foot  of  the  table  and 
compared  with  Peoria  on  the  basis  of  populations  corresponding 
to  the  dates  in  Appendix  I,  for  the  31  cities,  and  with  1910  for 
Peoria. 


68 


Table  of  Fixture  Rates  of  Thirty-One  Municipal  Water  Works 

Plants  compared  with  Peoria. 


CITIES 

Domestic  use 

6  rooms  or 

5  persons  or 

1  faucet 

Bath 
hot  and 
cold  • 

Water 

Closet 

Basin 

Sprinkling 

50ft.xl50ft.  lot 

and  street 

Total 

Louisville,  Ky . 

$4.80 

$4.00 

$2.40 

$  .80 

$6.00 

$18.00 

Kansas  City,  Mo..  .  . 

5.05 

3.90 

3.70 

7.50 

20.15 

Providence,  R.  I . 

6.00 

5.00 

5.00 

2.00 

5.00 

23.00 

• 

St  Paul,  Minn . 

4.00 

2.00 

3.00 

3.00 

12.00 

Columbus.  Ohio . 

5.00 

5.00 

4.00 

5.00 

19.00 

Memohis.  Tenn . 

6.00 

5.00 

5.00 

10.00 

26.00 

Richmond,  Va . 

5.00 

3.50 

3.00 

1.50 

9.60 

22.60 

Dayton,  Ohio . 

4.00 

2.00 

2.50 

2.00 

5.00 

15.50 

Nashville,  Tenn . 

9.00 

4.00 

5.00 

2.31 

20.31 

Fall  River,  Mass. .  .  . 

5.00 

5.00 

5.00 

2.50 

6.00 

23.50 

Grand  Rapids,  Mich. 

5.00 

2.00 

4.00 

5.00 

16.00 

Lowell,  Mass . 

6.00 

3.00 

4.00 

1.00 

3.00 

17.00 

Wilmington,  Del . 

5.00 

3.00 

2.00 

1.00 

5.00 

16.00 

Lynn,  Mass . 

5.00 

3.00 

3.00 

1.00 

4.00 

16.00 

New  Bedford,  Mass.. 

2.50 

2.50 

2.50 

1.25 

2.50 

11.25 

Lawrance,  Mass . 

5.00 

3.00 

4.00 

3.75 

15.75 

Houston.  Tex . 

12.00 

3.00 

6.00 

3.00 

24.00 

Manchester,  N.  H. .  . 

4.50 

2.00 

2.50 

.75 

5.00 

14.75 

Erie,  Pa . 

4.00 

3.00 

3.00 

1.00 

3.45 

14.45 

S  Mostly 

Brockton,  Mass . 

5.00 

4.00 

4.00 

1.50 

Harrisburg,  Pa . 

8.00 

4.00 

4.00 

2.50 

4.00 

22.50 

(  metered 

Ft.  Wayne,  Ind . 

4.40 

3.20 

2.40 

2.40 

12.40 

Allentown,  Pa . 

3.75 

1 .25 

2.00 

2.00 

9.00 

Saginaw,  Mich . 

7.00 

2.00 

3.00 

3.00 

15.00 

McKeesport,  Pa . 

8.00 

7.50 

7.50 

8.00 

31.00 

Binghampton,  N._  Y. 

3.00 

3.00 

3.00 

1.00 

3.00 

13.00 

Topeka,  Kan . 

6.00 

5.00 

3.00 

7.50 

21 .50 

Rockford,  Ill . 

5.00 

2.00 

2.50 

5.00 

14.50 

Taunton,  Mass . 

5.00 

3.00 

5.00 

2.00 

5.00 

20.00 

Waltham,  Mass . 

5.00 

2.00 

3.00 

1.00 

6.00 

17.00 

Poughkeepsie,  N.  Y. . 

3.50 

1.50 

2.00 

.75 

5.00 

12.75 

Mean  of  31  cities..  . . 

$5.37 

$3.30 

$3.58 

$1.48 

$4.90 

$18.63 

93,484  Pop. 

Peoria  rates . 

$6.00 

$3.00 

$3.00 

$1.50 

$6.00 

$19.50 

73,000  Pop. 

It  will  be  observed  that  considering  differences  of  popula¬ 
tion  the  rates  at  Peoria  are  as  low  as  for  the  31  cities  contained 
in  the  table. 

The  Peoria  rate  ordinance  provides  that  the  minimum  fix¬ 
ture  rate  for  dwellings  shall  be  $4.00.  This  should  be  con¬ 
sidered  in  connection  with  the  foregoing  comparisons  with 


69 


other  cities,  which  are  on  the  basis  of  a  six  room  house,  which 
is  the  minimum  probably  in  the  majority  of  cases. 

The  foregoing  comparisons  show  that  as  relates  to  flat  or 
fixture  rates,  the  private  consumer  has  nothing  to  complain  of, 
and  that  these  rates  are  reasonable  viewed  from  any  standpoint 
personal  to  the  consumer. 

THE  FOURTH  PHASE  OF  THE  SUBJECT  relates  to 
the  reasonableness  of  the  water  works  ordinance  as  affecting  the 
income  of  the  Company. 

The  Peoria  ordinance  provides,  concerning  meter  rates,  as 
follows : 


“When  the  daily  consumption  is  1,000  gallons  or 
less,  the  charge  to  be  at  the  rate  of  20  cents  per  1,000 
gallons.” 

“When  the  daily  consumption  is  more  than  1,000 
gallons,  on  the  excess  over  1,000  the  charge  to  be  at  the 
rate  of  6  cents  per  thousand.” 

The  minimum  meter  rate  for  a  single  premises  is  $3.00. 

As  stated  above,  the  198  residences  under  meter,  which  are 
among  the  largest  in  the  city,  are  getting  their  water  service 
for  about  $2,970,  which  at  the  flat  or  fixture  rate,  would  cost 
$6,360,  and  it  is  pretty  well  settled  that  the  fixture  rate  is  none 
too  high. 

If  meters  were  generally  applied  under  the  present  ordin¬ 
ance  the  revenue  from  residences  would  be  enormously  reduced. 

With  a  minimum  rate  of  $3.00  many  of  the  houses  now  pay¬ 
ing  from  $4.00  up  to  probably  $15.00,  would  be  reduced  to  the 
minimum  revenue  of  $3.00  per  annum,  and  the  Company  would 
have  the  meters  to  maintain  besides. 

Many  other  houses  would  also  sustain  a  large  reduction,  no 
one  can  tell  how  much  or  how  many,  except  as  indicated  by  the 
rates  for  the  198  houses  now  having  meters. 

If  the  Peoria  plant  had  been  completely  on  a  meter  basis  in 
1908,  it  is  estimated  that  the  average  consumption  would  have 
been  4,500,000  gallons  per  day  approximately,  or  say  1,642,- 
500,000  gallons  per  year. 

The  question  is,  what  proportion  of  this  water  consumption 

would  have  been  measured,  and  sold,  if  the  plant  had  been 
metered  98  to  100  per  cent?  That  is,  stating  it  in  reverse  order, 
what  would  have  been  the  combined  waste  and  unmeasured  con¬ 
sumption,  compared  with  that  measured? 

There  are  many  ways  for  water  to  disappear,  or  to  ap¬ 
parently  disappear. 

For  the  most  part,  the  amount  of  water  alleged  to  have 
been  consumed  in  water  plants  is  ascertained  by  pump  meas- 

70 


urement.  The  amount  reported  may  be  based  on  pump  dis¬ 
placement,  or  on  pump  displacement  less  some  assumed  per¬ 
centage  allow  for  slip. 

Either  method  introduces  an  unverified  factor  at  the  be¬ 
ginning. 

There  may  be,  and  generally  is,  a  material  quantity  that 
passes  through  the  meters  that  is  not  recorded.  Sometimes  this 
becomes  a  large  item,  amounting  to  several  per  cent. 

Leaky  street  mains,  and  service  pipes,  particularly  the  latter, 
are  a  fruitful  cause  of  wastage. 

In  all  cities  a  considerable  quantity  of-  water  is  used  in 
flushing  sewers,  for  watering  troughs,  sprinkling  streets,  flushing 
hydrants,  and  mains,  and  other  purposes,  particularly  in  the 
building  trades,  and  for  extinguishing  fires. 

Considering  how  variable  these  factors  must  necessarily  be 
in  different  cities,  it  is  no  wonder  that  there  is  a  widely  varying 
ratio  between  the  water  metered  and  unmetered. 

The  following  statement  furnishes  some  information  rela- 


tive  to  the  ratio 

between  the 

total  water 

consumed 

and  that 

which  is  recorded  by  meter  for 

a  number  of  cities : 

Daily  con- 

Per  cent 

Per  cent 

sumption  of  Services 

of  Water 

Year. 

Per  Capita. 

Metered. 

Metered. 

Yonkers,  N.  Y. . . . 

. 1908 

101 

100.0 

51.2 

Brockton,  Mass.  . , 

. 1909 

36 

99.2 

72.2 

Madison,  Wis . 

. 1909 

61 

98.6 

42.6 

Fall  River,  Mass. . 

. 1909 

50 

98.5 

49.0 

Cleveland,  Ohio.  . . 

. 1908 

100 

93.6 

77.0 

Milwaukee,  Wis... 

. 1909 

99 

83.0 

60.0 

Lowell,  Mass . 

. 1909 

55 

76.9 

50.9 

Lowell,  Mass . 

. 1898 

73 

46.9 

27.4 

Minneapolis,  Minn 

. 1908 

60 

76.1 

53.5 

St.  Paul,  Minn.  .  .  . 

. 1909 

56 

48.6 

34.0 

St.  Paul,  Minn.  .  .  . 

. 1896 

57 

10.5 

17.7 

Detroit,  Mich . 

. 1908 

178 

9.0 

30.0 

Buffalo,  N.  Y . 

. 1909 

323 

4.0 

20.3 

Peoria,  Ill . 

. 1908 

84 

3.6 

20.2 

The  great  lack  of  uniformity  of  ratios  for  different  cities 
shows  disturbing  elements  that  make  it  practically  impossible 
to  deduce  any  law  which  can  be  said  to  express  the  relation  be¬ 
tween  the  water  measured  by  meters,  and  the  total  water  con¬ 
sumed,  as  compared  with  the  number  of  services  having  meters 
and  the  total  number  in  use.  Taking  the  five  cities  having  over 
90  per  cent  of  the  services  metered,  and  obtaining  a  mean  of 
the  ratios  in  each  of  the  two  columns  of  ratios,  and  it  appears 

71 


\ 


that  for  a  mean  of  98  per  cent  of  services  metered,  there  is  corres¬ 
ponding  mean  of  54.4  per  cent  of  water  measured  through  meters 

Yonkers,  N.  Y. ;  Fall  River,  Mass.,  and  Madison,  Wis.,  are 
three  cities  with  a  high  ratio  of  services  metered,  but  with  a  low 
ratio  of  water  metered. 

It  is  fair  to  assume  that  the  amount  of  water  supplied  is  in 
error  in  these  cases. 

The  record  of  water  consumed  in  Peoria  is  believed  to  be 
more  carefully  determined  than  is  usual.  Also  the  consumption 
per  capita  is  small  for  a  city  with  so  few  meters.  It  is  noticeable 
that  there  is  over  20  per  cent  of  the  water  metered,  while  only 
3.6  per  cent  of  the  services  have  meters.  All  these  facts  indicate 
no  unusual  waste  for  an  unmetered  plant. 

It  is  believed  that  it  is  safe  to  assume  that  if  the  plant  was 
metered,  two  thirds  of  the  consumption  would  be  measured 
through  the  meters. 

That  is,  for  every  two  gallons  measured  and  sold,  three  gal¬ 
lons  would  have  to  be  pumped,  and  that  of  the  foregoing  1,642,- 
500,000  gallons  per  year,  only  1,095,000,000  gallons  would  have 
been  revenue  producing. 

The  operating  expenses  for  1908,  not  including  fixed  charges, 
but  including  taxes  and  depreciation,  would  be,  allowing  9,000 
meters  at  $2.00  per  annum,  about  $123,000  per  annum.'  To  pay 
this  will  take  approximately  12  cents  per  1,000  gallons. 

Less  than  one-half  of  these  operating  expenses  would  be 
influenced  by  the  amount  of  water  pumped,  so  that  it  is  safe  to 
say  that  if  no  additional  investment  should  be  needed,  5  cents 
per  1,000  gallons  would  prevent  an  actual  loss.  But  even  10  cents 
per  1,000  gallons  would  contribute  nothing  to  fixed  charge,  and 
would  not  carry  its  full  proportion  of  operating  expenses. 

An  8-cent  minimum  rate  could  only  be  defended  in  case 
there  was  a  large  business  which  could  be  had  for  this  rate,  which 
would  be  lost  otherwise,  and  the  Company  had  more  water  than 
could  be  used  by  other  consumers. 

The  6-cent  rate  of  the  ordinance  is  entirely  too  low  under 
any  condition. 

Speaking  generally,  no  water  plant  similar  to  the  Peoria  one 
can  operate  on  the  meter  rates  as  they  stand  in  the  ordinance, 
hence  they  may  be  said  to  be  not  only  unfair,  but  impossible. 


72 


s 


PROPOSED  CHANGE  OF  WATER  RATES. 

In  the  foregoing  discussion  of  reasonable  rates,  it  has  be¬ 
come  apparent  that  the  fixture  rates,  or  the  so-called  flat  rates,  of 
the  Peoria  Water  Works  Ordinance,  are  not  too  high,  and  cannot 
be  considered  unreasonable  from  any  point  of  view.  The  con¬ 
clusions  with  regard  to  the  effect  of  meters  on  the  consumption 
of  water,  in  view  of  the  necessity  that  the  Company  faces,  of 
either  curtailing  the  waste  of  water,  or  of  increasing  the  supply, 
has  lead  to  the  farther  conclusion  that  the  policy  of  putting  all 
the  Company’s  business  on  a  meter  basis  should  be  adopted,  and 
the  shift  from  flat  or  fixture  rates,  to  meter  rates,  made  as  rapidly 
as  possible. 

The  final  adoption  of  this  policy,  with  the  prompt  application 
of  meters  at  a  rate  to  put  the  whole  city  on  the  new  basis  by  the 
end  of  1913,  will  do  away  for  an  indefinite  period  with  the  neces¬ 
sity  of  an  increase  in  the  water  supply,  or  of  the  pumping  capac¬ 
ity,  except  as  relates  to  a  duplicate  equipment. 

Such  a  program  also  renders  a  revision  of  the  fixture  rates 
in  the  ordinance  unnecessary,  except  as  may  relate  to  certain 
deficiencies  or  omissions  which  experience  has  shown  to  exist. 
Nor  will  a  general  reassessment,  or  relisting  of  the  consumers  be 
necessary,  except  as  it  accompanies  the  proposed  change  to  a 
meter  basis. 

Notwithstanding  the  material  and  permanent  advantages 
which  will  undoubtedly  be  derived  from  the  general  adoption  of 
meters,  the  change  cannot  be  made  without  danger  to  the  revenue 
of  the  Company,  if  the  rates  are  based  wholly  upon  the  quantity 
of  water  measured  through  the  meters  themselves. 

Nor  can  any  scale  of  meter  rates  based  wholly  on  quantity 
give  justice  between  different  classes  of  consumers,  or  even  be¬ 
tween  individual  consumers  of  the  same  class.  Indeed,  it  must 
be  confessed  that  no  schedule  of  rates  that  can  be  devised,  will  in 
all  cases  bring  exact  justice.  The  best  that  can  be  done  will  be 
but  an  approximation.  The  approximation  may,  however,  be 
closer,  if  certain  principles  are  followed  than  if  they  are  ignored. 


SOME  CONTROLLING  PRINCIPLES  IN  RATE  MAKING. 

Many  of  the  early  and  present  advocates  of  the  use  of  meters, 
urged  as  one  reason  for  their  adoption  that  it  would  enable  water 
to  be  sold  at  a  uniform  price  to  all  consumers,  thus  preventing, 
as  was  alleged,  any  discrimination.  The  argument  being,  that  to' 

73 


have  different  rates  for  different  quantities  used,  was  in  effect  to 
discriminate  between  individuals  and  classes  of  consumers. 

Water,  it  was  contended,  is  a  commodity,  and  one  consumer 
should  not  be  charged  more  for  a  like  quantity  than  another. 
This  reasoning  lead  to  the  adoption  of  what  may  be  termed  “Flat 
Meter  Rates,”  as  in  the  cities  of  Cleveland  and  Milwaukee,  where 
there  is  only  one  price  per  unit,  for  whatever  purpose  water  is 
used,  or  in  whatever  quantity  served. 

Notwithstanding  such  fallacies  have  controlled  in  the  shap¬ 
ing  of  rates  in  some  cases,  the  analogy  instituted  between  the 
product  dealt  out  by  a  public  utility,  and  ordinary  commodities 
sold  in  the  open  market,  does  not  hold  on  critical  examination. 

The  product  of  a  public  utility  does  not  consist  of  a  dis¬ 
engaged  thing,  or  commodity.  It  is  not  gas,  or  water  delivered 
in  a  bushel  measure  that  is  sold,  but  gas  or  water  delivered,  con¬ 
tinuously  or  intermittently,  at  the  will  of  the  user,  at  a  particular 
spot,  under  pressure.  When  no  draught  is  being  made  it  is  at 
hand  ready  to  be  drawn  on  the  instant.  This  “being  always  at 
han$,”  and  “ready  for  use,”  is  the  larger  part  of  the  service, 
rendered  by  a  public  utility.  In  other  words,  paradoxical  as  it 
sounds,  the  principal  service  of  a  public  utility  is  being  ready 
to  serve. 

When  a  city  contracts  with  a  public  service  corporation  for 
fire  protection,  it  is  not  for  a  given  amount  of  water  delivered 
on  order,  as  so  much  coal,  but  it  is  for  a  given  amount  to  be 
delivered  under  pressure  on  momentary  demand,  without  notice. 
This  can  only  be  done  by  an  expensive  plant  conducting  the 
water  to  all  parts  of  the  city,  and  always  kept  under  pressure. 
Though  it  were  not  called  into  use  for  weeks  at  a  time,  the  fixed 
charges  and  expenses  would  remain  practically  the  same. 

So  completely  does  the  “service  of  being  ready  to  serve” 
overshadow  the  direct  product  furnished  for  extinguishing  fires, 
that  if  the  water  actually  used  was  paid  for  by  the  gallon  at 
what  it  costs,  the  price  would  be  astounding. 

As  a  matter  of  fact,  when  conditions  are  analyzed,  the  most 
valuable  of  service  is  rendered  for  long  periods  without  the  use  of 
a  drop  of  water. 

Automatic  sprinkling  systems  installed  where  there  are  valu¬ 
able  goods  and  other  property  to  protect,  may  run,  and  do  run  for 
years  without  any  water  escaping  therefrom.  But  they  are  ren¬ 
dering  service  just  the  same,  by  furnishing  protection,  and  by  the 
reduction  of  insurance  rates.  Many  business  establishments  put 
in  expensive  systems  of  their  own,  and  maintain  pumping  plants 
at  continuous  expense,  for  no  other  purpose  than  to  secure  a  re¬ 
duction  in  fire  insurance  rates. 

Then  who  shall  say  that  the  “Readiness  to  Serve”  may  not, 
in  many  instances,  be  the  most  valuable  service  rendered? 

74 


The  same  reasoning  applies  in  a  considerable  degree  to  all 
kinds  of  service  rendered  by  a  public  utility.  There  is  scarcely 
an  exception. 

If  all  water  works  plants  had  been  built  solely  for  fire  pro¬ 
tection,  as  have  a  number  of  special  systems  of  late  years,  water 
would  not  have  been  sold  by  quantity.  The  service  would  have 
been  gauged  in  some  other  manner. 

Water  works  however,  were  and  are  usually  built  to  meet  a 
great  variety  of  needs,  with  some  of  which  the  quantity  is  a  large 
if  not  a  controlling  element.  But  even  with  these  at  first,  con¬ 
sideration  of  quantity  did  not  wholly  control,  for  the  fixture  rate, 
made  without  regard  to  quantity,  is  more  of  a  readiness  to  serve 
charge  than  otherwise. 

It  was  only  with  the  development  of  a  successful  meter  that 
the  element  of  a  quantity  charge  was  emphasized. 

The  first  tendency  of  meter  advocates  was  to  get  as  far  away 
as  possible  from  the  original  practice.  Hence  the  flat  meter  rate 
based  upon  enthusiasm  rather  than  any  well  considered  plan. 

Such  rates  have  not  secured  general  favor,  being  obviously 
unsuited  to  the  most  of  water  works  plants.  Only  in  large  cities, 
where  the  cost  of  supplying  water  is  relatively  small,  or  where 
the  plant  has  mostly  been  paid  for  by  taxation  or  past  earnings, 
so  that  rates  can  be  fixed  as  low,  or  lower  than  the  usual  mini¬ 
mum  scale,  are  flat  meter  rates  possible. 

And  even  then  they  are  only  possible  by  making  one  class 
of  consumers  pay  for  service  rendered  to  another  class,  or  by  the 
municipality  as  a  whole  meeting  the  inequality. 

This  statement  is  well  illustrated  by  the  experience  in  Cleve¬ 
land,  which  is  the  most  conspicuous  example  of  the  application 
of  flat  meter  rates  on  a  large  scale. 

After  the  process  of  setting  meters  had  been  in  progress 
from  two  to  three  years,  and  25,000  meters  were  in  use,  in  1904, 
Edward  W.  Bemis,  Superintendent,  presented  a  paper  to  the 
American  Water  Works  Association,  containing  an  analysis  of 
the  results  they  obtained  as  relates  to  the  use  of  metered  water. 
He  found  after  taking  out  3,000  business  meters  and  those  that 
had  not  been  in  use  more  than  a  year,  that  there  were  left  16,820 
house  meters.  Of  these,  5,770,  or  about  one-third,  were  using 
water  at  the  average  of  56  gallons  per  day,  and  5,550,  also  about 
one-third,  were  using  water  at  the  average  rate  of  155  gallons 
per  day,  and  5,550  were  using  water  at  the  average  rate  of  about 
660  gallons  per  day. 

Another  analysis  made  the  following  year  and  contained  in 
the  New  England  Water  Works  Association  for  1905,  of  26,000 
meters,  not  including  business  meters,  showed  a  consumption 
per  meter  as  follows : 


75 


y \  of  the  total  number,  or  6,500  residences, 

averaged .  62  gallons  per  day 

]/2  of  the  total  number,  or  13,000  residences, 

averaged .  83  gallons  per  day 

And  34  of  the  total  number,  or  6,500  resi, 

dences,  averaged . 104  gallons  per  day 

With  the  Cleveland  minimum  readiness  to  serve  rate  of  $2.50 
per  annum,  and  a  meter  rate  of  5  1-3  cents  per  1,000  gallons,  the 
following  would  be  the  yearly  charges  for  houses  using  varying 
quantities  of  water: 

50  gallons  per  day . $  3.47  per  annum 

100  gallons  per  day .  4.45  per  annum 

150  gallons  per  day .  5.42  per  annum 

200  gallons  per  day .  6.39  per  annum 

300  gallons  per  day .  8.34  per  annum 

400  gallons  per  day.  .  10.27  per  annum 

500  gallons  per  day .  12.22  per  annum 

In  the  same  paper  Mr.  Bemis  gave  the  cost  of  setting  and 
maintaining  16,800  £4-inch  meters  in  use  at  that  time,  the  details 
_  of  which  will  be  found  on  page  62  of  this  report. 

From  the  1908  report  of  the  Cleveland  Water  Department, 
the  cost  of  setting  and  maintaining  64,149  ^4-inch  meters  has 
been  obtained,  which  will  also  be  found  on  page  62. 

These  data  show  that  $2.00  per  annum  covers  all  meter  costs 
in  Cleveland,  including  interest. 

Two  dollars  taken  off  of  the  revenue  for  each  metered  house 
leaves  the  contribution  of  that  house  toward  the  operating,  de¬ 
preciation  and  interest  fund,  on  all  of  the  plant  except  meters. 

The  minimum  rate  of  $2.50  applies  to  all  houses  using  5/^- 
inch  meters,  whose  annual  assessment  rate  is  under  $9,00,  but 
just  what  numbers  would  be  included  in  this  rate,  out  of  64,149 
houses,  is  not  known,  though  it  must  amount  to  many  thousands. 

If  the  water  used  in  such  houses  remains  the  same  as  in 
1905,  then  there  would  be  many  thousands  of  houses  that  would 
contribute  less  than  $2.00  a  year  apiece  to  this  fund. 

The  works  had  cost  to  the  end  of  1908,  $11,876,195,  the  bond¬ 
ed  debt  was  $5,091,000,  at  4  per  cent  interest,  and  the  operating 
expenses,  interest  and  sinking  fund  amounted  to  $588,327  per 
annum,  to  which,  if  1  per  cent  depreciation  is  added,  gives  a  total 
annual  charge  of  $677,089.  Total  income  from  water  rents, 
$953,055. 

It  is  evident  that  the  occupants  of  these  thousands  of  houses 
were  not  paying  for  their  water  service  by  a  wide  margin,  and 
that  some  other  group  of  consumers,  or  other  agency,  was. 

76 


Instead  of  a  uniform  meter  rate  great  varieties  of  schedules 
have  been  devised  and  put  into  operation,  so  that  it  is  scarcely  an 
exaggeration  to  say  that  no  two  plants  in  the  country  have  the 
same  scale,  or  use  the  same  basis  for  a  scale.  Meter  rates,  im¬ 
possible  as  it  may  seem,  being  much  more  variable,  and  less  har¬ 
monious  than  schedules  of  fixture  rates. 

As  it  would  take  much  time  with  no  corresponding  benefit, 
to  go  into  the  details  of  meter  rate  schedules  now  in  use,  it  will 
be  sufficient  to  say  that  maximum  rates  vary  from  4  to  60  cents 
per  1,000  gallons,  and  minimum  rates  from  2  to  30  cents,  with  all 
conceivable  intermediate  combinations  of  rates,  and  unthinkable 
annual  minima. 

This  babel  of  rates,  and  the  lack  of  any  consistent  guiding 
principle  in  their  making,  has  been  recognized  for  years  by  water 
works  managers,  and  efforts  have  been  made  to  develop  some 
plan  that  makes  an  approach  to  uniformity,  and  that  can  be  made 
generally  applicable. 

Probably  the  most  intelligent  effort  in  that  direction  was 
made  by  the  New  England  Water  Works  Association,  which  re¬ 
sulted  in  a  report  of  a  committee  of  which  Freeman  C.  Coffin  was 
chairman,  made  in  1905,  and  published  in  the  proceedings  of  the 
Association  for  that  year. 

The  report  as  finally  submitted  takes  the  form  mainly  of 
certain  suggestions  to  be  observed  in  fixing  meter  rates.  The 
committee  concluded  that  it  was  undesirable  to  attempt  to  fix  a 
scale  of  rates  because  it  would  be  impracticable  to  devise  a  scale 
that  would  meet  with  general  adoption  or  adaptability.  It  was 
thought  possible,  however,  to  arrive  at  some  basis  for  a  scale  that 
would  be  applicable  to  any  particular  plant,  due  consideration 
being  given  to  the  special  conditions  prevailing  with  the  plant. 

The  more  important  requirements  of  a  method  for  arranging 
meter  rates  the  committee  held  were : 

That  it  should  insure  a  sufficient  revenue  to  meet  the  oper¬ 
ative  and  financial  demands  of  the  plants. 

That  it  should  be  flexible  so  that  the  rates  may  be  easily 
changed  in  case  of  a  deficiency  or  surplus  of  income. 

That  the  method  should  allow  of  the  use  of  meters  upon 
services  with  a  single  faucet  without  increase  over  the  faucet 
rate,  except  for  actual  use  or  waste  of  water. 

That  it  should  secure  from  large  houses  with  a  full  line  of 
fixtures,  a  sufficient  amount  to  meet  the  proportional  fixed 
charges  of  the  plant  even  if  little  water  is  used. 

The  committee  suggested  two  methods  that  it  was  thought 
would  measurably  meet  these  requirements. 

One  of  the  methods  proposed,  called  the  “Frontage  Assess¬ 
ment”  method,  is  based  upon  the  frontage  of  the  lot  or  premises 
occupied  by  the  buildings  being  served. 

77 


The  other,  called  the  “Multiple  Minimum  Rate”  method,  is 
founded  on  rates  giving  the  right  to  the  installation  of  the  vari¬ 
ous  kinds  of  fixtures  or  apparatus  to  be  used  on  the  premises. 

Each  method  is  expected  to  provide  a  revenue,  not  affected 
by  the  amount  of  water  used,  and  which  will  cover  a  material 
part  of  the  necessary  annual  outlays,  and  is  really  in  effect  the 
establishing  of  a  “Readiness  to  Serve”  charge  accompanied  by 
a  quantity  meter  rate. 

Something  akin  to  the  “Frontage  Assessment”  plan  was 
adopted  by  Chicago  when  the  water  works  were  put  into  oper¬ 
ation.  It  combined  frontage  assessment  with  fixture  rates,  as 
well  as  with  meter  rates. 

The  fixing  of  a  minimum  rate  based  upon  some  feature  of 
the  plant  or  premises  served,  has  been,  and  is  used  extensively 
in  various  plants,  particularly  for  the  purpose  of  bridging  over 
the  hazardous  period  of  change  from  a  fixture  to  a  meter  rate 
basis. 

When  Cleveland  began  in  1901,  the  radical  policy  of  uni¬ 
versal  metering,  at  the  most  rapid  rate  ever  known,  minima,  or 
readiness  to  serve  rates,  were  adopted  to  lessen  tne  risk  involves. 

For  all  premises  supplied  by  meters  larger  than  ^-inch  a 
minimum  cnarge  at  the  rate  of  $10.00  per  annum  was  made. 

For  premises  having  ^-inch  meters,  there  were  four  mini¬ 
mum  charges. 

When  the  annual  charge  under  the  old  fixture  rate  assess¬ 
ments  was  $4.00  and  under,  the  minimum  was  $2.50  per  annum ; 
when  it  was  $4.00  to  $6.00,  the  minimum  was  $4.00  per  annum ; 
when  it  was  $6.00  to  $10.00  it  was  $6.00  per  annum,  and  when 
it  was  over  $10.00  the  minimum  was  $8.00  per  annum. 

The  flat  meter  rate  additional  to  these  minima  was  40  cents 
per  thousand  cubic  feet,  or  5  1-3  cents  per  thousand  gallons  to 
all  classes  and  kinds  of  customers.  Since  that  time,  these  mini¬ 
ma  for  ^g-inch  meters  have  been  abolished,  and  others  substi¬ 
tuted,  except  the  lowest  one  of  $2.50  per  annum,  which  has  been 
made  to  apply  to  all  cases  where  the  annual  assessment  rate 
does  not  exceed  $9.00. 

Some  water  works  managers  advocate,  and  some  have 
adopted  a  varying  scale  of  minima,  based  on  the  size  of  meter. 

It  is  very  common  for  water  companies  to  make  an  annual 
charge  for  installing  and  maintaining  meters,  based  often  on  the 
size  of  the  meter.  Some  municipalities  do  the  same,  as  for  in¬ 
stance,  Milwaukee  charges  one  dollar  a  year. 

This  charging  for  meters  can  serve  no  mwoose  that  cannot 
be  served  by  establishing  minimum  rates  that  will  include  the 
meter  expense,  unless,  indeed,  it  disguises  the  charge  so  that  the 
consumer  does  not  realize  that  it  is  a  part  of  the  water  rates. 

78 


But  whatever  basis  is  adopted,  or  reason  given  for  minimui.i 
rates  where  water  is  furnished  by  the  quantity,  they  are  in  the 
last  analysis,  merely  a  “readiness  to  serve”  charge,  and  the 
almost  universality  of  their  use,  in  one  form  or  another,  amounts 
to  a  unanimous  recognition  of  the  necessity  of  some  factor  in 
meter  rate  schedules  that  does  not  vary  with  the  quantity  of 
water. 


METER  RATE  SCHEDULE  FOR  PEORIA. 

The  concrete  problem  at  Peoria  is  to  devise  a  plan  which 
will  minimize  the  risk  of  the  revenue  attending  a  radical  change 
from  fixture  rates  to  meter  rates,  and  that  will  the  most  equitably 
and  automatically  apportion  this  revenue  among  the  consumers, 
and  be  as  simple  as  possible  in  its  application  and  operation. 

No  plan  that  has  been  proposed  or  suggested,  commends 
itself  as  being  entirely  adapted  to  the  conditions. 

Out  of  a  total  of  9,454  residences,  and  small  business  houses, 
only  198,  all  residences,  have  meters,  9,256  of  them  being  on  room 
and  fixture  rates,  which  are  probably  as  fairly  scaled  as  is  prac¬ 
ticable.  We  have  a  detailed  analysis  of  the  fixtures  and  rooms 
for  which  charges  are  made  in  each  of  these  9,454  houses,  with  a 
classified  summary  of  the  same. 

In  view  of  the  information  contained  in  the  foregoing  dis¬ 
cussion,  and  much  that  it  was  not  practicable  to  introduce,  there 
seems  no  fairer  way  than  to  use  “rooms  and  fixtures”  as  a  basis 
for  a  scale  of  “readiness  to  serve”  minima. 

In  effect  this  would  take  into  account  that  element  which 
the  Committee  of  the  New  England  Water  Works  Association 
sought  to  introduce  by  the  “Frontage  Assessment”  method.  The 
rooms  of  any  house  being  the  substantial  equivalent  of  the  lot 
frontage,  and  the  kinds  of  fixtures  used,  measurably  representing 
the  character  of  the  improvement. 

The  effect  of  using  rooms  and  fixtures  as  a  basis,  is  some- 
,  what  analogous  to  combining  the  “Frontage  Assessment” 
method  and  the  “Multiple  Fixture”  method.  In  fact,  it  is  be¬ 
lieved  that  the  number  of  rooms  is  a  better  factor  than  the  front¬ 
age  of  the  lot  occupied  by  the  house. 

Another  consideration  that  commends  this  proposed  basis 
for  the  minima,  is  the  fact  that  before  meters  were  invented, 
practice  had  recognized  fixtures  as  the  universal  factor  for  which 
charges  should  be  made,  so  that  they  may  be  said  to  be  funda¬ 
mental  in  rate  making. 

As  has  been  heretofore  noted,  when  meters  came  to  demand 
consideration,  they  directed  the  attention  of  water  users,  and 
water  purveyors  to  the  commodity  idea,  and  temporarily  at  least 

79 


the  fixture,  and  the  idea  for  which  it  stood  in  water  rate  sched¬ 
ules  was  obscured. 

The  report  of  the  Committee  of  the  New  England  Water 
Works  Association  is  evidence  that  it  is  demanding  considera¬ 
tion  even  in  meter  rate  schedules. 

It  is  not  thought  advisable  that  minimum  charges  should 
be  varied  with  the  number  of  fixtures  of  a  given  kind,  installed 
in  any  house,  nor  that  an  attempt  should  be  made  to  fix  a  minima 
for  every  kind  of  fixture  or  apparatus  which  may  be  used.  It 
will  be  simpler  and  ought  to  bring  just  as  good  results,  to  include 
in  the  minimum  rate  schedule,  in  addition  to  the  number  of 
rooms,  only  the  most  important  fixtures,  or  apparatus  used  in 
buildings,  whether  residences  or  business  houses. 

That  is,  there  would  be  only  one  minimum  rate  for  baths, 
whatever  the  number  used,  the  quantity  meter  rate  being  ex¬ 
pected  to  cover  the  multiplication  of  them. 

The  minimum  rates  would  be  confined  to  the  following 
items : 

Number  of  rooms,  baths,  water  closets,  wash  basins,  laundry 
sinks  or  tubs,  and  yard  or  street  sprinklers. 

The  following  proposed  rates  are  based  upon  100  cubic  feet 
of  water  instead  of  1,000  gallons,  100  cubic  feet  being  the  equiva¬ 
lent  of  750  gallons. 

THE  PROPOSED  NEW  METER  RATE  ORDINANCE 
should  embody  the  following  provisions  relative  to  the  installa¬ 
tion  and  use  of  meters  by  the  Peoria  Water  Works  Company. 

On  and  after  the  passage  of  such  ordinance  the  Company  is 
to  begin  the  systematic  and  compulsory  installation  of  meters 
for  all  service  pipes  which  have  not  already  been  metered, 
through  which  a  permanent  and  constant  supply  of  water  is  fur¬ 
nished. 

Meters  to  be  applied  first  to  manufacturing  establishments 
and  business  houses  of  all  kinds,  including  stores,  saloons,  res¬ 
taurants,  office  buildings,  hotels  and  boarding  houses.  To  stables 
and  watering  troughs  that  are  kept  running.  To  schools, 
churches,  hospitals  and  public  buildings,  of  all  kinds,  where  the 
greatest  saving  of  water  can  be  effected. 

This  work  to  be  followed,  and  accompanied  by  the  applica¬ 
tion  of  meters  to  private  dwellings,  in  any  systematic  manner 
most  conducive  to  economical  working  and  reduction  in  water 
consumption. 

The  operation  of  installing  meters  to  be  carried  forward, 
without  unnecessary  interruption,  at  a  rate  sufficiently  rapid  to 
accomplish  the  complete  metering  of  the  city  by  December  31, 
1913. 


80 


METER  RATES  TO  BE  PAID  QUARTERLY. 

Water  measured  through  meters  shall  be  charged  for  as 
follows : 

For  the  first  400  cubic  feet  of  water  used  through  a  single 
meter  per  day,  at  the  rate  of  15  cents  per  100  cubic  feet. 

For  all  water  used  through  a  single  meter,  in  excess  of  400 
cubic  feet  per  day,  at  the  rate  of  7.5  cents  per  100  cubic  feet. 

READINESS  TO  SERVE  RATES  shall  be  paid  quarterly 
in  addition  to  the  foregoing  meter  rates,  for  all  dwellings,  board¬ 
ing  and  lodging  houses,  hotels,  club  houses,  hospitals,  office 
buildings,  restaurants,  stores,  saloons,  work  shops,  stables,  and 
manufactories,  and  other  establishments,  whose  annual  charge, 
on  the  flat  or  fixture  rate  basis  would  not  exceed  $200.00  per  an¬ 
num,  as  follows : 

A  basic  room  rate  of  20  cents  per  room  per  quarter,  shall 
be  paid,  for  all  rooms  in  any  building,  served  by  a  single  meter, 
but  not  including  closets  and  halls ;  and  provided  that  stores, 
saloons,  shops,  and  other  buildings  that  consist  of  large  rooms, 
shall  be  rated  as  having  one  room  to  each  300  square  feet  of  floor 
space ;  and  provided,  that  the  quarterly  room  rate  charge  shall 
never  be  less  than  80  cents  for  any  building  supplied  through  a 
single  meter :  Provided,  further,  that  the  foregoing  room  rate 
charge  shall  cover  the  use  of  a  single  faucet  and  sink,  but  no' 
other  fixtures. 

All  such  buildings  supplied  through  a  single  meter,  shall  pay 
in  addition  to  the  meter  and  room  rate,  a  quarterly  readiness  to 
serve  rate  for  the  use  of  fixtures  of  each  of  the  following  kind, 
provided  such  fixtures  are  used : 


For  one  or  more  baths . 50  cents 

water  closets . 50  cents 

wash  basins . 25  cents 

laundry  sinks  or  tubs . 25  cents 

lawn  or  street  sprinklers . 75  cents 


Provided  that  no  readiness  to  serve  charge  shall  be  made  for 
any  other  kind  of  fixtures  or  apparatus,  or  for  keeping  animals 
on  the  premises. 

And  provided  further  that  the  amount  of  water  at  meter 
rates,  charged  to  a  single  metered  premises,  shall  not  be  less  than 
600  cubic  feet  per  quarter. 

All  other  buildings,  establishments,  or  premises,  to  which 
meters  are  applicable,  and  which  are  not  properly  classifiable 
under  the  foregoing  “Readiness  to  Serve”  schedule,  are  to  pay 
meter  rates  only. 


81 


PROPOSED  FLAT  OR  FIXTURE  RATE  PROVISIONS. 


In  all  cases  where  water  is  used  that  is  not  measured  through 
a  meter,  the  fixture  rate  shall  be  applied. 

It  is  proposed  that  the  schedule  of  rates  found  in  the  original 
ordinance  be  re-enacted,  with  the  following  additions  thereto : 


Wash  basins . $1.50  per  annum 

Each  additional . 1.00  “ 

Laundry  sinks  or  tubs . 1.50  “ 

Each  additional .  1.00  “ 

Washing  machines .  4.00  “ 

Each  additional .  2.00  “ 

Motor  pump . 5.00  “ 

Heater,  steam  or  hot  water,  in  dwellings .  3.00  “ 


A  rate  should  also  be  fixed  for  automatic  sprinkling  systems, 
and  fire  hydrants  furnished  on  private  premises,  but  before  any 
attempt  is  made  to  do  so,  an  analysis  of  the  present  charges  foir 
such  service  as  is  now  being  rendered  is  required,  and  the  basis 
upon  which  they  are  made  should  be  fully  understood. 

This  is  a  problem  that  has  been  considered  and  frequently 
discussed  by  water  works  managers,  but  about  which  consider¬ 
able  difference  of  opinion  exists.  All  sides  of  the  question 
should  be  canvassed  before  any  final  decision  is  reached,  as  there 
seems  to  be  no  unity  of  principles  or  practice  in  fixing  such  rates. 

The  free  water  provisions  of  the  original  ordinance  should 
be  repealed. 

The  foregoing  scale  of  rates  are  put  forward  with  the  belief 
that  they  substantially  cover  the  ground,  and  would  meet  the 
requirements  at  Peoria,  but  there  are  doubtless  many  ways  in 
which  they  can  be  improved. 

Notwithstanding  the  invaluable  work  of  the  Auditor  in  fur¬ 
nishing  a  basis  upon  which  to  build,  there  are  a  number  of  things 
that  should  be  more  fully  considered  with  the  suggestions  of  the 
officers  of  the  Water  Works  Company. 

It  is  believed  that  the  plan  and  rates  proposed,  possess  the 
merit  of  being  easily  and  equitably  raised  or  lowered  by  a  change 
in  the  meter  rate. 


82 


Appendix  I. 


Statistics  of  Thirty-nine  Municipal  Water  Works  Plants 
Supplied  by  Pumps  in  Various  Cities  Having 
Populations  of  25,000  to  240,000, 

/ 


83 


Populations  of  25,000  to  240,000. 


Private 

Revenue 

Reported 

Operating 

“3 

NAME  OF  C 

Total 

Per 

Tap 

Per 

Capita 

Value  of 
Public 
Service 

and 

Maintenance 

Expense 

M  w  O 

c  «  > 

4)0  4) 

9*  *-iP4 

X  <0. 

weu's 

*Kansas  City,  IV 

$839,182 

$22 

$3.49 

$211,900 

$331,075 

39 

Louisville,  Ky. 

708,725 

21 

2.99 

100,920 

217,612 

37 

*Providence,  R. 

717,752 

27 

3.34 

197,969 

28 

*St.  Paul,  Minn 

368,990 

13 

1.76 

142,835 

83,210 

22 

*Columbus,  Ohic 

265,148 

11 

1.61 

150,545 

57 

*Atlanta,  Ga. .  . 

292,715 

17' 

2.06 

202,141 

140,565 

48 

Memphis,  Tenri 

373,787 

21 

2.74 

25,000 

192,467 

52 

Richmond,  Va. 

210,411 

12 

1.92 

30,808 

62,468 

30 

Fall  River,  Mas 

210,975 

25 

1.98 

44,740 

60,605 

29 

Dayton,  Ohio . 

140,449 

6 

1.32 

72,969 

52 

Grand  Rapids, 

175,290 

10 

1.65 

12,275 

58,908 

33 

Nashville,  Tenr 

241,151 

19 

2.32 

51,725 

104,538 

43 

Lowell,  Mass. . 

187,018 

15 

1.96 

5,534 

118,334 

63 

Wilmington,  D 

213,964 

12 

2.40 

39,243 

73,194 

34 

Lynn,  Mass.  .  . 

267,344 

18 

3.18 

147,177 

55 

New  Bedford,  ' 

218,803 

19 

2.67 

56,806 

26 

Lawrence,  Mas 

122,835 

18 

1,67 

72,591 

59 

*Houston,  Texas 

211,841 

31 

2.89 

70,392 

33 

Yonkers,  N.  Y. 

204,649 

27 

2.93 

35,850 

99,863 

49 

Manchester,  N 

131,023 

19 

1.91 

21,275 

34,561 

26 

Erie,  Pa . 

154,548 

109,933 

10 

2.43 

73,141 

42,511 

47 

Brockton,  Mas 

14 

1.76 

32,000 

39 

Harrisburg,  Pa 

189,183 

12 

3.23 

39,166 

65,545 

34 

Ft.  Wayne,  Inc 

91,300 

8 

1.72 

35,966 

39 

Saginaw,  Mich 

83,754 

11 

1.61 

24,476 

39,540 

47 

*  Allentown,  Pa. 

109,120 

9 

2.16 

57,445 

44,864 

41 

Pawtucket,  R. 

242,539 

23 

5.19 

71,800 

56,974 

23 

McKeesport,  P 

63,877 

10 

1.38 

20,836 

47,272 

74 

Binghamton,  b 

123,293 

13 

2.68 

45,193 

37 

Topeka,  Kan. . 

80,911 

15 

1.85 

30,360 

37 

Newton,  Mass, 

132,619 

17 

3.42 

5,698 

28,642 

22 

Rockford,  Ill.. 

68,450 

9 

1.80 

29,286 

43 

Woonsocket,  P 

85,717 

26 

2.42 

25,352 

18,597 

22 

Taunton,  Mass 

78,555 

15 

2.54 

33,575 

42 

Hamilton,  Ohi 

45,147 

9 

1.56 

27,000 

32,791 

73 

Waltham,  Mas 

86,614 

23 

3.04 

39,088 

45 

Aurora,  Ill. . . . 

49,795 

9 

1.79 

18,444 

37 

Madison,  Wis. 

41,122 

9 

1.49 

26,177 

64 

Poughkeepsie, 

59,359 

14 

2.28 

33,891 

57 

Totals  and  m 
Averages .... 

$7,997,848 

205,073 

$  16 

$2.41 

$3,087,706 

79,172 

38 

*  Cities  repo: 


APPENDIX  I. 

Statistic  of  Thirty-Nine  Municipal  Water  Works  Plants,  Supplied  by  Pumps  in  Various  Cities,  having  Populations  of  25,000  to  240,000. 


NAME  OF  CITY 


Date 

of 

Report 


+-> 

a 

r  < 


<D 

bO 

< 


Population 


Water  Consumption 


Millions  of 
Gallons 
Per  Year 


Gallons 

per 

Capita 

daily 


Head 
on  Pumps 
in  Feet 


Number 
of  Miles  of 
Mains 


Number  of 
Services 


Number  of 
Meters 


Investment 


Total 


Per  Mile 
of  Main 


Per 

Capita 


Private  Revenue 


Total 


Per 

Tap 


Per 

Capita 


Reported 
Value  of 
Public 
Service 


Operating 

and 

Maintenance 

Expense 


*Kansas  City,  Mo . 

Louisville,  Ky . 

*Providence,  R.  I . 

*St.  Paul,  Minn . 

*Columbus,  Ohio . 

*  Atlanta,  Ga . 

Memphis,  Tenn . 

Richmond,  Va . 

Fall  River,  Mass . 

Dayton,  Ohio . 

Grand  Rapids,  Mich..  . 

Nashville,  Tenn . 

Lowell,  Mass . 

Wilmington,  Del . 

Lynn,  Mass . 

New  Bedford,  Mass...  . 

Lawrence,  Mass . 

*Houston,  Texas . 

Yonkers,  N.  Y . 

Manchester,  N.  H . 

Erie,  Pa . 

Brockton,  Mass . . 

Harrisburg,  Pa . 

Ft.  Wayne,  Ind . 

Saginaw,  Mich . 

*Allentown,  Pa . 

Pawtucket,  R.  I . 

McKeesport,  Pa . 

Binghamton,  N.  Y . 

Topeka,  Kan . 

Newton,  Mass . 

Rockford,  Ill. .  . . '. . 

Woonsocket,  R.  I . 

Taunton,  Mass . 

Hamilton,  Ohio . 

Waltham,  Mass . 

Aurora,  Ill . 

Madison,  Wis . 

Poughkeepsie,  N.  Y. .  . 


Totals  and  means.  .  .  . 
Averages . 


1908 

34 

239,900 

8,814 

100 

405 

393.0 

39,389 

15,948 

$7,083,807 

$18,025 

$  29 

$839,182 

$22 

1909 

49 

236,700 

7,761 

90 

310 

373.5 

33,731 

2,642 

8,891,015 

26,344 

38 

708,725 

21 

1908 

32 

214,600 

5,692 

72 

311 

372.0 

26,321 

23,180 

7,586,941 

20,395 

35 

717,752 

27 

1909 

39 

209,600 

4,287 

56 

327.9 

28,063 

13,628 

5,160,781 

15,738 

25 

368,990 

13 

1907 

37 

164,700 

5,942 

99 

210 

195 

224.9 

24,987 

19,016 

3,294,926 

14,650 

20 

265,148 

11 

1908 

32 

141,800 

4,787 

92 

230 

197.0 

17,517 

16,436 

3,065,012 

15,558 

22 

292,715 

17 

1909 

39 

136,400 

5,117 

103 

202.5 

18,103 

7,183 

3  077  925 

15,199 

23 

373,787 

21 

1909 

79 

109,500 

4,553 

114 

122 

133.4 

18,000 

12,146 

2,667,400 

19,996 

24 

210,411 

12 

1909 

35 

106,500 

1,949 

50 

186 

109.6 

8,316 

8,197 

2,216,155 

20,220 

21 

210,975 

25 

1908 

38 

106,300 

3,024 

78 

150 

167.8 

21,220 

16,217 

3,577,743 

21,321 

33 

140,449 

6 

1909 

37 

105,900 

5,569 

144 

146 

205 

175.0 

17,125 

6,328 

1,936,770 

11,067 

18 

175,290 

10 

1908 

78 

103,900 

5,333 

141 

308 

114.6 

12,585 

7,440 

2,850,000 

24,870 

27 

241,151 

19 

1909 

39 

95,100 

1,913 

55 

164 

143.4 

12,307 

9,465 

3,151,864 

21,980 

33 

187,018 

15 

1909 

37 

89,000 

3,514 

108 

I 

112 

285 

127.2 

17,920 

5,685 

2,637,172 

20,654 

30 

213,964 

12 

1909 

38 

83,900 

2,334 

76 

148 

141.0 

14,876 

5,827 

2,966,946 

21,042 

35 

267,344 

18 

1908 

42 

81,700 

2,740 

92 

167 

114.0 

11,516 

3,628 

3,453,034 

30,290 

42 

218,803 

19 

1907 

32 

73,300 

1,282 

48 

f  324 
\  186 

90.8 

6,970 

6,220 

2,269,698 

24,996 

31 

122,835 

18 

1909 

31 

73,300 

3,197 

120 

"  138 

94.6 

6,726 

1,641 

1,211,404 

12,805 

16 

211,841 

31 

1908 

34 

69,800 

2,572 

101 

185 

122.0 

7,492 

7,492 

2,636,818 

21,613 

38 

204,649 

27 

1909 

35 

68,600 

1,265 

50 

1 

116 

l  275 

117.4 

6,737 

4,945 

1,962,198 

16,714 

28 

131,023 

19 

1909 

42 

63,600 

4,655 

200 

\ 

f  299 

I  237 

130.6 

15,763 

438 

2,615,506 

20,027 

41 

154,548 

10 

1909 

29 

62,300 

831 

36 

302 

110.0 

7,879 

7,817 

1,874,851 

17,044 

31 

109,933 

14 

1909 

76 

58,500 

3,658 

171 

235 

67.2 

15,528 

12,240 

1,275,000 

18,973 

22 

189,183 

12 

1908 

28 

53,100 

1,438 

74 

142 

102.0 

11,834 

4,078 

1,288,247 

26,300 

24 

91,300 

8 

1909 

37 

51,900 

3,332 

176 

uu 

t  132 

104.8 

7,412 

334 

987,929 

9,427 

18 

83,754 

11 

1909 

40 

50,300 

2,541 

138 

f  157 

1  255 

67.0 

11,884 

159 

1,004,613 

15,000 

20 

109,120 

9 

1909 

32 

46,700 

3,311 

194 

\ 

264 

171.1 

10,309 

8,679 

2,442,015 

14,272 

52 

242,539 

23 

1908 

26 

46,300 

1,979 

117 

60.1 

6,090 

1,628 

604,880 

10,064 

13 

63,877 

10 

1909 

42 

45,900 

2,375 

142 

168 

86.7 

9.537 

2,472 

1,083,112 

12,493 

23 

123,293 

13 

1908 

26 

43,800 

880 

55 

58.6 

5,229 

3,560 

756,505 

12,910 

17 

80,911 

15 

1908 

38 

38,800 

894 

63 

245 

143.5 

7,900 

6,908 

2,314,691 

16,130 

60 

132,619 

17 

1909 

34 

38,000 

1,318 

95 

90.5 

7,215 

3,109 

849,926 

9,391 

22 

68,450 

9 

1909 

25 

35,400 

538 

42 

246 

55.8 

3,326 

2,878 

1,024,283 

18,000 

27 

85,717 

26 

1909 

33 

30,900 

793 

70 

161 

86.0 

5,237 

2,630 

1,391,656 

16,182 

45 

78,555 

15 

1909 

25 

28,900 

883 

83 

248 

66.3 

5,068 

3,053 

1,193,731 

18,005 

41 

45,147 

9 

1909 

36 

28,500 

869 

83 

215 

54.0 

3,800 

320 

787,040 

14,575 

28 

86,614 

23 

1908 

23 

27,800 

578 

57 

175 

59.3 

5,212 

4,521 

494,767 

8,343 

18 

49,795 

9 

1909 

27 

27,600 

617 

61 

231 

58.6 

4,601 

4,538 

575,756 

9,825 

21 

41,122 

9 

1909 

36 

26,000 

890 

94 

. 

33.0 

4,108 

3,840 

825,597 

25,018 

31 

59,359 

14 

3,314,800 

114,025 

94 

5,211.7 

497,833 

266,466 

•$94,987,714 

SIS, 226 

$  28 

$7,997,848 

$  16 

33 

84,995 

2,924 

212 

133.6 

12,760 

6,832 

2,435,582 

205,073 

$3.49 

$211,900 

$331,075 

2.99 

100,920 

217,612 

3.34 

197,969 

1.76 

142,835 

83,210 

1.61 

150,545 

2.06 

202,141 

140,565 

2.74 

25,000 

192,467 

1.92 

30,808 

62,468 

1.98 

44,740 

60,605 

1.32 

72,969 

1.65 

12,275 

58,908 

2.32 

51,725 

104,538 

1.96 

5,534 

118,334 

2.40 

39,243 

73,194 

3.18 

147,177 

2.67 

56,806 

1,67 

72,591 

2.89 

70,392 

2.93 

35,850 

99,863 

1.91 

21,275 

34,561 

2.43 

73,141 

1.76 

32,000 

42,511 

3.23 

39,166 

65,545 

1.72 

35,966 

1.61 

24,476 

39,540 

2.16 

57,445 

44,864 

5.19 

71,800 

56,974 

1.38 

20,836 

47,272 

2.68 

45,193 

1.85 

30,360 

3.42 

5,698 

28,642 

1.80 

29,286 

2.42 

25,352 

18,597 

2.54 

33,575 

1.56 

27,000 

32,791 

3.04 

39,088 

1.79 

18,444 

1.49 

26,177 

2.28 

33,891 

$2.41 

$3,087,706 

79,172 

*  Cities  reported  as  to  population  on  basis  of  1910  census. 


Appendix  II. 


Showing  Relation  Between  Population,  Water  Pumped, 
Miles  of  Mains,  Revenue,  and  Num¬ 
ber  of  Services. 


Sho-V 

Number  of  Services. 

Year 

Ending 

Population 

Total 

Private 
Revenue 
Per  Million 
of  Gallons 

Total 
Revenue 
Per  Million 
of  Gallons 

Private 

Revenue 

Per 

Service 

Oct.  31 

1889 

40,660 

B  80,173 
56,166 

1890 

41,920 

$40 

$55 

$20 

1891 

43,340 

68,212 

35 

54 

17 

1892 

44,760 

82,185 

45 

72 

18 

1893 

46,180 

95,379 

54 

96 

16 

1894 

47,590 

111,249 

65 

104 

18 

1895 

49,010 

115,731 

66 

103 

17 

1896 

50,430 

115,010 

62 

98' 

15 

1897 

51,850 

121,038 

61 

94 

16 

1898 

54,090 

124,757 

67 

102 

16 

1899 

56,350 

131,532 

70 

103 

17 

1900 

58,600 

134,533 

71 

104 

16 

1901 

60,040 

148,118 

71 

99 

17 

1902 

61,480 

164,996 

84 

113 

19 

Dec.  31 

1903 

62,920 

201,768 

83 

110 

19 

1904 

64,360 

179,198 

83 

110 

19 

1905 

65,800 

188,092 

84 

111 

19 

1906 

67,240 

202,982 

82 

106  . 

20 

1907 

68,680 

1  217,753 

81 

104 

20 

1908 

1909 

70,120 

71,560 

!  225,007 

81 

104 

20 

June  30 

1910 

73,000 

s230,671 

67 

85 

18 

s  Private  revenue  <nade  for  water  furnished  to  business 
establishments  throw  severai  thousands  of  dollars  less  than 
the  actual.  Figures 


APPENDIX  II. 


Showing  relation  between  Population,  Water  Pumped,  Miles  of  Mains,  Revenue  and  Number  of  Services. 


Year 

Ending 

Population 

Total 

Y  early 
Pumpage 
m  Millions 
of  Gallons 

Average 
Daily 
Pumpage 
in  Millions 
of  Gallons 

Gallons 
Per  Capita 
Per  Day 

Number 
of  Miles  of 
Mains 

Population 
Per  Mile 
of 

Main 

Number 

of 

Services 

Services 
Per  1000 
of 

Population 

Gallons 
Per  Service 
Per  Day 

REVENUE 

Public 

Private 

Oct.  31 

1889 

40,660 

45  0 

900  . 

$  47,060 

8  33,113 

8 

1890 

41,920 

1,023 

2.8 

67 

2,084 

49 

1,340 

15,350 

40,816 

1891 

43,340 

1,260 

3  5 

80 

2,563 

59 

1,350 

23,712 

44,500 

1892 

44,760 

1,141 

3.1 

70 

76.8 

580 

2,881 

64 

1,080 

31,016 

51,169 

1893 

46,180 

994 

2.7 

59 

78.4 

590 

3,268 

78 

830 

41,781 

53,578 

1894 

47,590 

1,065 

2.9 

61 

78.6 

600 

3,862 

81 

750 

41,900 

69,349 

1895 

49,010 

1,119 

3.0 

63 

78.8 

620 

4,245 

86 

720 

41,920 

74,011 

1896 

50,430 

1,171 

3.2 

63 

79.1 

640 

4,797 

95 

670 

41,950 

73,060 

1897 

51,850 

1,286 

3.5 

68 

79.4 

650 

5,074 

98 

690 

41,950 

79,088 

1898 

54,090 

1,229 

3.4 

64 

79.7 

680 

5,278 

97 

630 

41,950 

82,807 

1899 

56,350 

1,277 

3.5 

62 

82.1 

690 

5,436 

97 

640 

41,953 

89,579 

1900 

58,600 

1,292 

3.5 

60 

83.0 

710 

5,702 

98 

620 

42,171 

92,362 

1901 

60,040 

1,497 

4.1 

68 

83.2 

720 

6,048 

101 

680 

42,319 

105,799 

1902 

61,480 

1,461 

4.0 

65 

87.7 

700 

6,365 

103 

630 

42,371 

122,625 

Dec.  31 
1903 

62,920 

1,834 

4.3 

68 

88.8 

710 

6,768 

107 

640 

49,979 

151,789 

1904 

64,360 

1,635 

4.5 

69 

89.2 

720 

7,100 

110 

630 

44,275 

134,923 

1905 

65,800 

1,709 

4.7 

71 

91 .6 

720 

7,492 

114 

620 

45,265 

142,827 

1906 

67,240 

1,919 

5.3 

78 

93.4 

720 

7,956 

118 

660 

46,212 

156,770 

1907 

68,680 

2,093 

5.7 

83 

96.7 

710 

8,571 

125 

670 

46,876 

170,877 

1908 

70,120 

2,171 

5.9 

84 

99.3 

710 

9,040 

329 

660 

47,470 

177,538 

1909 

71,560 

2,578 

7.1 

98 

101.2 

710 

9,679 

135 

730 

j  une  ou 
1910 

73,000 

2,714 

7.4 

102 

102.6 

710 

10,239 

140 

710 

47,500 

sl83,171 

Private 
Revenue 
Per  Million 
of  Gallons 

Total 
Revenue 
Per  Million 
of  Gallons 

r 

Private 

Revenue 

Per 

Total 

Service 

80,173 

56,166 

$40 

$55 

$20 

68,212 

35 

54 

17 

82,185 

45 

72 

18 

95,379 

54 

96 

16 

111,249 

65 

104 

18 

115,731 

66 

103 

17 

115,010 

62 

98’ 

15 

121,038 

61 

94 

16 

124,757 

67 

102 

16 

131,532 

70 

103 

17 

134,533 

71 

104 

16 

148,118 

71 

99 

17 

164,996 

84 

113 

19 

201,768 

83 

110 

19 

179,198 

83 

110 

19 

188,092 

84 

111 

19 

202,982 

82 

106 

20 

217,753 

81 

104 

20 

225,007 

81 

104 

20 

s230,671 

67 

85 

18 

s  Private  revenue  obtained  by  auditor  from  rating  cards  for  the  year  ending  June  30th,  1910.  As  no  analysis  was  made  for  water  furnished  to  business 
establishments  through  meters,  and  there  has  been  no  increase  in  hydrant  rental,  the  total  revenue  given  is  probably  several  thousands  of  dollars  less  than 
the  actual.  Figures  given  for  population  include  territory  served  outside  the  city. 


Appendix  III. 


Computation  of  Going  Value  of  the  Peoria  Water  Works 
Plant.  Cost  of  Reproducing  Physical  Plant 
January  1,  1909,  $1,950,000. 


Diagram  for  Computing  Going  Value  on  file  in 
City  Clerk’s  Office. 


91 


Cc>ant,  January  1,  1909,  $1,950,000 


\T 

Going  Value  of  Operating  Plant 

Pi 

Annual 
Going  Value 
Difference 

Present 
Worth  of 
$1.00  with 

Present 
Worth  of 
Annual 

< 

W 

>* 

RE 

'harges 

Net  Earnings 

Privat< 

n 

Interest 

of  Net 
Earnings 

interest 
at  6% 

Going 

Value 

Con- 

struc’n 

Period 

1909 

1910 

$181,5(1 

185,1* 

.$  5,000 
10,000 

$  46,500 
53,680 

$.943 

.890 

$  43,851 
47,775 

<u 

1911 

188,8] 

*$  11,000 

$136,870 

$.840 

$114,970 

d 

1912 

192, 5^ 

°  g 

4,350 

132,400 

.792 

104,861 

<d 

1913 

196,2-; 

‘u  o3 

3,290 

126,950 

*  .747 

94,831 

> 

O) 

1914 

199,9^ 

a  a)  "d 

11,440 

120,980 

.705 

85,291 

1915 

203, 6( 

-a  % 

rj  4->  j j 

21,090 

113,510 

.665 

75,484 

1916 

207, 2^ 

o  00 -s 

32,740 

104,050 

.627 

65,239 

p 

cr 

1917 

210,9'; 

■Jj  C 

0^0 

43,580 

95,390 

.592 

56,470 

<u 

1918 

214,66 

p  0)  CO 

56,030 

85,130 

.558 

47,502 

a 

1919 

218,3^ 

71,180 

72,160 

.527 

38,028 

"a 

1920 

222, OS 

g  a  ci 

90,680 

54,840 

.497 

27,255 

•  H 

1921 

225,71 

a  c. 

S  -p 

108,970 

38,740 

.469 

18,169 

XJ 

1922 

229, 3< 

O  fH 
<D  p  2 

4->  n. 

110,120 

39,770 

.442 

17,578 

o 

1923 

233,0* 

128,261 

23,820 

.417 

9,933 

o 

1924 

236, 7( 

s  ^ 

r  *-(  r! 

136,410 

17,850 

.393 

7,015 

1925 

240,4^ 

<0  >-h  o 

143,060 

13,380 

.371 

4,964 

•  rH 

u 

1926 

244,1* 

149,210 

9,420 

.350 

3,297 

<D 

1927 

247,81 

o 

155,250 

5,560 

.330 

1,834 

1928 

251, 5( 

M-t 

160,600 

2,400 

.312 

749 

*The  column  f< 
period,  contains  me 
revenue  column,  he 
be  had  by  filling  oui 
column  headed  “Ar 
have  been  changed. 


Total  Going  Value  $865,096 


•  P  '"d 

a  o  o 
OS'S 
ojsS 

co  Fh 


<1) 

a 

CD 

> 

<D 

U 

r— H 

cd 

3 

CT 

CD 

a 


cd 

-4-> 

-Q 

O 


*0 

o 

•  tH 

u 

CD 

Ph 


APPENDIX  III. 

Computation  of  Going  Value  of  The  Peoria  Water  Works  Plant.  Cost  of  Reproducing  Physical  Plant,  January  1,  1909,  $1,950,000. 


P4 

w 


OPERATING  PLANT 


REVENUE 


Private 


Public 


Operating  and  Investment  Charges 


Expenses 


Taxes 


Depreciation 


Interest 


1909 

1910 


1911 

1912 

1913 

1914 

1915 

1916 

1917 

1918 

1919 

1920 

1921 

1922 

1923 

1924 

1925 

1926 

1927 

1928 


$181,500 

185,180 


188,870 

192,550 

196,240 

199,920 

203,600 

207,290 

210,971 

214,660 

218,340 

222,020 

225,710 

229,390 

233,080 

236,760 

240,440 

244,130 

247,810 

251,500 


$47,500 

47,500 


a 

o 


Tl  W  W 
o ,rH 

a5 

CL  3  *3 

<3  03 

>  4* 

£  S 

•rt  cd 

& 

S3 

4-3  tf 

m  p  o 
a  acd 
°  u  v 

°  o  . 

f  t  1 

<D  O 

in  22  S 

<D  O  cd  <D 
p  o  W  p 

C  u  <o-g 

4-5  4-3  O 


$60,000 

61,500 


63,000 

64.500 

66,000 

67.500 
69,000 

70.500 
72,000 

73.500 
75,000 

76.500 
78,000 

79.500 
81,000 

82.500 
84,000 

85.500 
87,000 

88.500 


$15,000 

15,000 


nO  <D 

°  S 

•  t-H 

*-i  cd 

CD  c/1 

a 

0  CD 

rH  ^  ^ 

Ch  4-5  4-5 

o 

•  r-t  in  h 

4-5  •  t-4  tS 

0  O 

rj  M 

P  CD  ^ 
in  cd  rd 

a  ^  b 
O  ^  cd 
o  b 

£  £22 
^  g  CL 

0  o  ^ 

^  °  0 

^  g  J-, 
43  o 


$15,000 

15,000 


a 

o 

in 


•  t-H  ?  O 


.-4  4-5  0 

U  4-5 
0  C/l  4-5 

a*^ 
a 

a  0 

O  4-5 

g‘o  a 

g  2  § 

45  £L  4-5 

S  0  53 

§  'O  jb 
0  ^Tl 

0  ^  43 
0  o 

31  a  S 

**  a 

1-4 

5  o  ■■ 

33  0  0 
^06 

43  cd 
4-5  in 


$97,500 

97,500 


0 

4-1 

O 


Td  d> 

.2  S 

1-4  cd 

0  m  . 
CL  ^ 

H 

b  ^  S 

O  in 

*43*^  S 

2^o 

2  2  w 

45 

W  4-5  dD 

2  a  a 
8'g  03 

°  b 

0^  a 
43  bi5 

^  g  a 


Net  Earnings 


$  41,500 
43,680 


*125,870 

128,050 

130,240 

132,420 

134,600 

136,790 

138,970 

141,160 

143,340 

145,520 

147,710 

149,890 

152,080 

154,260 

156,440 

158,630 

160,810 

163,000 


HYPOTHETICAL  PLANT 


REVENUE 


Private 


Public 


Operating  and  Investment  Charges 


Expenses 


Taxes 


29,000 

38.500 
49,000 
60,000 

72.500 
87,000 

100,700 

116,000 

134,000 

156.500 

177.500 

181.500 

202.500 

213.500 
223,000 
232,000 
240,900 
249,100 


rtf  in  m 

O’"1  ,TH 

-  g-a 

O.G  S 

CD  ^ 

P  4-5 

^  b 

Cd 

.2  *0. 


u 

0 


a 

o 


0 

243  ^ 

2  ^ 

o 

b^ 


in 

53 

O 

0 


0 

43 

4-5 


u 

0 

4-3 


2 
r— < 

O 


0 

S  'Td 
cd  0 

o  w  45 
4-5 

0  0  *g 
43  43  « 

4->  4-i  O 


$40,000 

42,850 

45,710 

48,560 

51,410 

54,260 

57,120 

59,970 

62,820 

65,680 

68,530 

71,380 

74,240 

77,090 

79,940 

82,790 

85,650 

88,500 


$  5,000 

10,000 


73  0 
o  g 
'u  cd  . 

0  m  rtf 

CL  ,  0 
0 

43 

3  45”  ' 
O 

•  t— 1  m 

4- 5  -t-4 
0 
b 

5- 4 
4-5 


a 

o 


m  cd 


m  m 

O  *  rH I 


T3 


53 
cd 
u 

2  a 

a  a 

3543 
0 
cd 

<  0  ^ 
T^  O 

45  <4_t 


53 

O 

0 

0 

43 

4-> 


u 

0  'o 
±3  0 


Depreciation 


Interest 


O 

m 


2nd 

O  43  -s 

-d  ^ 

CD  c/3  4-5 

wL-^‘g 

a  0 

0*4^... 

•  .—i  n4 

2  0  a 

3  0  3 

S_(  V-4  ^5 

4-5  £L  4-5 

g  0  a 

o  ^  22 
u  CL 

a  0 

S  V- 

4  o 

ic  8  a> 

0) 

43 
4-5 


0 

0 

43 


J-l 

0 


cd 

0 


a 

cd 

in 


°  a 

*i3  cd 
0  m 

ajs3 

53  ^  45 

O  in 

•  rH  •  t“H 

p  0  m 

FH  d-(  •  «-* 

0  ^T-4 

a  c! 

,rH  cj 

Ofi 
d  aj 


a 

o 


4-5 

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C3 

O 

0 


0 

43 

44) 


CL 


07?  o 
45  O  cd 
4^  0  0 
<1  0  ^ 
43  o 


Going  Value  of  Operating  Plant 


Annual 
Going  Value 
Difference 
of  Net 
Earnings 

Present 
Worth  of 
$1.00  with 
interest 
at  6% 

Present 
Worth  of 
Annual 
Going 
Value 

Met  Earnings 

$  5,000 

$  46,500 

$.943 

$  43,851 

10,000 

53,680 

.890 

47,775 

$  11,000 

$136,870 

$.840 

$114,970 

4,350 

132,400 

.792 

104,861 

3,290 

126,950 

-  .747 

94,831 

11,440 

120,980 

.705 

85,291 

21,090 

113,510 

.665 

75,484 

32,740 

104,050 

.627 

65,239 

43,580 

95,390 

.592 

56,470 

56,030 

85,130 

.558 

47,502 

71,180 

72,160 

.527 

38,028 

90,680 

54,840 

.497 

27,255 

108,970 

38,740 

.469 

18,169 

110,120 

39,770 

.442 

17,578 

128,261 

23,820 

.417 

9,933 

136,410 

17,850 

.393 

7,015 

143,060 

13,380 

.371 

4,964 

149,210 

9,420 

.350 

3,297 

155,250 

5,560 

.330 

1,834 

160,600 

2,400 

.312 

749 

*The  column  for  each  plant  headed  “net  earnings”,  after  the  construction  Total  Going  Value  $865  096 

period,  contains  merely  differences  between  the  expen  secolumn  and  the  private  '  ’ 

revenue  column,  hence  does  not  give  the  true  net  earnings,  which  could  only 
be  had  by  filling  out  the  columns  left  blank.  If  this  had  been  done  however,  the 
column  headed  “Annual  Going  Value,  Difference  of  Net  Earning,”  would  not 
have  been  changed. 


Appendix  IV. 


Map  of  the  City  of  Peoria,  showing  Pipe  System  con¬ 
nected  with  the  Plant  of  the  Peoria  Water  Works 
Company,  with  Proposed  New  Feeder  Mains. 


On  file  in  City  Clerk’s  Office. 


95 


Appendix  V. 


Diagram  Showing  Population  in  Relation  to  Mileage  of 
Street  Mains,  Number  of  Service  Pipes,  and 
Water  Supplied  by  Months,  as  Given 
by  Pump  Displacement. 


On  file  in  City  Clerk’s  Office. 


97 


Appendix  VI 


I 

List  of  Consumers  Furnished  With  Free  Water. 


Estimated  Amount  of  Free  Water,  1908,  and  Value  at  Meter  Rates,  20 
and  6  cents  per  1,000  Gallons,  Made  and  Furnished  by 
the  Peoria  W7ater  W7orks  Company. 


APPENDIX  VI. 


List  of  Consumers  Furnished  With  Free  Water.  Estimated 
Amount  of  Free  Water  1908,  and  Value  at  Meter  Rates, 

20  and  6  Cents  per  1,000  Gallons,  Made  and 
Furnished  by  the  Peoria  Water 
Works  Company. 


CITY  SERVICE. 


Gals.  Per  Year. 

Amount. 

City  Hall  . 

.  6,532,500  $ 

443.05 

Patrol  House  . 

.  900,000 

105.10 

10  Engine  Houses . 

.  9,000,000 

1 .05 1 .00 

Emergency  Hospital . 

.  276,000 

45.20 

House  of  Correction . 

.  2,700,000 

213.10 

Library  . 

.  1 ,800,000 

159.10 

Lincoln  Park . 

.  600,000 

65.96 

Morton  Square . 

.  600,000 

65.96 

State  House  Square . 

.  600,000 

65.96 

Hamilton  Boulevard  . 

.  600,000 

65.96 

Armstrong  Boulevard . 

.  600,000 

65.96 

20  Drinking  Fountains . 

.  3,250,000 

650.00 

30  Watering  Troughs . 

.  27,375,000 

3,175.50 

Flushing  Sewers  . 

.  36,000,000 

2,202.00 

Sweeping  Streets . 

.  1,000,000 

88.00 

• 

91,833,500  $  8,461.85 

COUNTY 

SERVICE. 

Court  House . 

.  4,500,000  $ 

321.10 

Court  House  Lawn . 

.  600,000 

65.96 

County  Jail  . 

.  3,600,000 

267.10 

8,700,000  $ 

654.16 

MISCELLANEOUS  SERVICE. 

Gals.  Per  Year.  Amount. 

Home  of  Good  Shepherd . 

.  2,820,000  $ 

220.30 

St.  Joseph’s  Home . 

.  2,800,000 

219.10 

Crittenden  Home  . 

.  360,000 

72.00 

Guyer  Home . 

.  360,000 

72.00 

101 


MISCELLANEOUS  SERVICE— Continued 


Gals.  Per  Year 

Amount 

Proctor  Hospital  . 

.  4.462,500 

318.85 

St.  Francis  Hospital . 

.  6,262,500 

426.85 

35  Churches . . 

. . .  4,200,000 

840.00 

1  High  School . 

.  1 ,200,000 

123.10 

16  Grade  Schools . 

.  12,800,000 

1,585.60 

Sacred  Heart  Academy. . 

.  800,000 

99.10 

9  Parochial  Schools . 

.  3,500,000 

669.90 

39,565,000 

$  4,646.80 

CITY  USES . 

.  91,833.500 

$  8.451.85 

COUNTY  . 

.  8,700,000 

654.16 

MISCELLANEOUS  . 

.  39,565,000 

4,646.80 

140,098,500 

$13,762.81 

383,000  Gallons 


AVERAGE  PER  DAY 


Appendix  VII. 


Peoria  Water  Works  Statistics. 


103 


APPENDIX  VII. 


PEORIA  WATER  WORKS 
STATISTICS. 

Population  served  by  Peoria  Water  Works  plant 

1910  .  73,000 

Population  served  by  Peoria  Water  Works  plant 

1908  .  70,120 

Population  of  Peoria,  1870,  U.  S.  Census .  22,849 

Total  water  consumed  1908,  gallons . 2,171,000,000 

Daily  average  consumption  1908,  gallons .  5,905,000 

Daily  average  consumption  per  capita  1908,  gallons  84 

Daily  consumption  for  August  9  and  10,  1909,  gal¬ 
lons  .  10,000,000 

Daily  average  consumption  for  year  ending  June  30, 

1910,  gallons .  7,435,000 

Daily  average  consumption  per  capita  1910,  gallons  102 

Daily  average  for  month  of  maximum  consumption, 

Maximum  consumption  for  single  day,  lune  30, 

1910,  gallons . ‘ .  10,688,000 

Total  head  on  pumps  maximum,  approximate .  315 

Total  head  on  pumps  minimum,  approximate .  280 

3  Vertical  Compound  Duplex  Worthington  Pumps, 

capacity  each,  7,200,000  gallons . 21,600,000 

6  Heine  200  h.  p.  water  tube  boilers,  h.  p .  1,200 

Storage  reservoir  capacity,  gallons .  18,000,000 

Length  of  street  mains,  1908,  miles .  99.3 

Length  of  hydrant  connections,  1908,  miles .  2.9 

Length  of  30-inch  main  to  reservoir,  miles .  1.0 

Weight  of  C.  I.  pipe,  1908,  tons .  16,387 

Weight  of  C.  I.  special  castings,  1908,  tons .  396.7 

Number  of  valves  in  system,  1908 .  1,729 

Total  number  of  fire  hydrants,  1908 .  1,273 

Total  number  of  services,  1908 .  9,040 

Total  number  of  active  services,  1908 .  9,129 

Total  number  of  meters  in  use,  1908 .  315 

Length  of  street  mains,  June  30,  1910,  miles .  102.6 

Length  of  hydrant  connections,  1910,  miles .  3.0 

Weight  of  C.  I.  pipe,  1910,  tons .  16,715 

Weight  of  C.  I.  special  castings,  1910,  tons .  404.9 

Total  number  of  fire  hydrants,  1910 .  1,308 

Total  number  of  services,  1910 .  10,239 

Total  number  of  active  services,  1910 .  8,285 

Total  number  of  meters  in  use,  1910 .  371 


105 


'V 


"V 


